Applied Materials delivers earnings above estimates, but Wall Street isn’t impressed

Applied Materials Inc. beat expectations on both earnings and revenue in its third-quarter financial results today, and followed up with strong guidance for the current quarter, but its stock fell in the wake of elevated expectations from investors.

Though the company is one of the biggest beneficiaries of the artificial intelligence boom, that trend means that it had a high bar to clear, and investors likely deemed its results weren’t impressive enough. Its stock fell more than 4% in the after-hours trading session.

The company reported earnings before certain costs such as stock compensation of $3.50 per share, up from $2.48 one year ago and above Wall Street’s consensus estimate of $3.40 per share. Revenue for the period increased 25%, to $9.12 billion, surpassing the Street’s target of $9 billion.

Chief Executive Gary Dickerson (pictured) hailed what was another record-breaking quarter that saw the company deliver its largest-ever sequential revenue growth. “As the rapid global adoption of AI drives unprecedented demand for our materials engineering solutions, we are further raising our semiconductor systems revenue expectations for calendar 2026 and are confident we will grow faster than the market this year,” he said.

For the current quarter, Applied expects revenue of around $10.25 billion at the midpoint of its guidance range, with earnings of $4.02 per share. It’s a strong forecast. Wall Street is looking for sales of just $9.55 billion and earnings of $3.71 per share.

Applied’s cutting-edge semiconductor manufacturing equipment is essential to the chipmaking industry’s efforts to ramp up its high-end chip production capacity. The company makes various kinds of machines that support different semiconductor manufacturing processes, catering to the most advanced silicon for AI, which requires expertise that few other companies possess. Its gear is bought by the world’s biggest semiconductor manufacturers, including Taiwan Semiconductor Manufacturing Co. Ltd., Intel Corp. and Micron Technology Inc.

The company’s semiconductor systems business, which is by far its biggest, saw revenue grow from $5.56 billion in the year-ago period to $7.04 billion at the end of the latest quarter. Meanwhile, revenue from the applied global services segment rose from $1.46 billion a year earlier to $1.78 billion. Though Applied’s results and guidance did not impress investors, CFRA analyst Brooks Idlet told Reuters that its momentum is encouraging. “We think calendar year 2027 consensus estimates leave room for upside if recent strength continues,” he said.

Stifel analyst Brian Chin said the market’s expectations for Applied were elevated because its biggest rivals, Lam Research Corp. and KLA Corp., both posted strong quarterly results of their own last week, along with bullish forecasts. The three companies are the main suppliers to the semiconductor industry, and are scrambling to grab a bigger slice of the fast-growing market for dynamic random access memory or DRAM, which is in huge demand globally.

DRAM accounted for 26% of Applied’s semiconductor systems revenue in the third quarter, up from 22% one year earlier. Foundry and logic equipment make up the remainder of the company’s systems business.

On a conference call with analysts, Applied Chief Financial Officer Brice Hill said the company plans to ramp up its manufacturing capacity in response to long-term demand signals for its products. It’ll do this by expanding its existing facilities as well as its manufacturing and customer support teams.

The goal is to add enough new capacity to double the company’s quarterly semiconductor system output by 2028. In addition, the company is also planning a further capacity expansion to “ensure we have the option to support further increases in demand by 2030,” Hill said.

Photo: Applied Materials