Key Takeaways:
Applied Materials now expects revenue growth approaching 40% in 2026, its third upward revision this year, as AI data-center spending reshapes the wafer-fab equipment market. Chief Executive Gary Dickerson told the Goldman Sachs Communacopia + Technology Conference on Sept. 9 that leading-edge foundry logic, DRAM including high-bandwidth memory, and advanced packaging will account for 80% of wafer-fab equipment growth this year — a mix he expects to hold in 2027 and beyond.
"AI is the biggest technology inflection I've ever seen in my life," Dickerson said at the conference, adding that the company holds a rolling eight-quarter customer forecast and is in discussions extending through 2030.
The guidance ladder has moved fast. Applied told investors in February 2024 to expect more than 20% revenue growth, raised that to more than 30% in May, and has since moved toward 40%, Dickerson said. Semiconductor Systems gross margin sits in the mid-50s, up about 190 basis points year over year, while services revenue grew more than 20% with margins up 180 basis points. Advanced packaging is tracking above 70% growth this year at a midpoint between $2 billion and $3 billion, and process control and inspection are each growing more than 50%.
The demand mix has inverted. Smartphone wafer starts at leading-edge foundries were four times larger than data-center wafer starts several years ago, according to Dickerson. The two are now roughly equal, and he expects data-center wafer starts to reach twice smartphone volumes within a couple of years. That shift is the arithmetic behind the raised outlook: it moves the equipment market's center of gravity toward the deposition, eBeam metrology and packaging tools where Applied holds the largest share.
Applied has more than 37,000 process chambers in the field connected to AI-enabled servers, most of them remotely, feeding predictive maintenance and chamber-matching models that raise good-die output per wafer. Dickerson said some service contracts can more than double revenue per tool. That installed base is the reason services margins expanded even as the company spends to add capacity — and it is the piece of the business least exposed to the timing of any single fab construction cycle.
Internally, Applied is using AI to compress product development rather than cut staff. Dickerson cited roughly 50% productivity improvement in coding for products with heavy software and algorithm content, and said time per task has improved by an order of magnitude in some service applications. "We will add headcount, but we are going to grow revenue many times faster," he said.
The competitive read is straightforward. Applied is the largest deposition supplier across all segments and leads in eBeam process control, putting it directly against Lam Research in deposition and etch and KLA in inspection and metrology. ASML remains the sole supplier of extreme-ultraviolet lithography, a position Applied does not contest. The three together form the equipment oligopoly that TSMC, Samsung Foundry and Intel depend on to ramp new nodes — and all three benefit when leading-edge logic and DRAM capacity expand at the same time, as they are now.
China remains primarily an ICAPS market for Applied — IoT, communications, automotive, power and sensors — and Dickerson expects that business to grow at mid- to high-single-digit rates over time, well below the AI-driven segments. Near-term growth there is being helped by data-center power and photonics, and he said next year should be slightly stronger than this year. U.S. export controls continue to limit how much of the market Applied can address.
Capital allocation stays simple: return 80% to 100% of generated cash to shareholders, with smaller acquisitions filling technology gaps. Applied recently bought a panel-level plating company for advanced packaging and an X-ray technology company for inspection. Dickerson said large M&A is not feasible in the current geopolitical environment. The company is also investing in hybrid bonding, combining a partner's technology with five Applied technologies on an Applied platform.
The stock has already priced in a lot of this. Applied shares have gained 188% over the past year and trade at $469, giving the company a market capitalization of $371 billion and a price-to-earnings ratio of 40.46, according to InvestingPro data. InvestingPro's Fair Value model places the stock among its Most Overvalued list, even as 25 analysts have revised earnings upward for the coming period. That gap between momentum and valuation is the central tension: the guidance ladder has been climbed three times in 2026, and each rung raises the bar for the next one.
Dickerson declined to give a numerical forecast for 2027 but said it will be "a great year" for Applied, with growth continuing into 2028. He said he sees no macro warning signs resembling prior cycle peaks, pointing to customer profitability and more than $1 trillion in annual chip spending. Agentic AI is adding incremental demand for CPUs and DRAM on top of prior forecasts, and physical AI could add more later. The risk to the story is not demand — it is whether clean-room space and supply chains can be built fast enough to deliver it.
This article is for informational purposes only and does not constitute investment advice.
