Applied Materials beats earnings, eyes 20% growth on AI boom
Semiconductor equipment maker delivers strong Q2 guidance as computing infrastructure spending accelerates
Applied Materials reported stronger-than-expected first quarter results and issued bullish guidance for the current quarter, driven by accelerating demand for artificial intelligence infrastructure that the company expects will propel its semiconductor equipment business to grow more than 20% this calendar year.
The Santa Clara, California-based equipment maker posted revenue of $7.01 billion for the fiscal first quarter, surpassing analyst estimates of $6.88 billion. Earnings per share reached $2.38, exceeding the $2.21 consensus and representing a 7.8% beat relative to Wall Street expectations.
Chief Executive Officer Gary Dickerson pointed to the rapid expansion of AI computing infrastructure as the primary catalyst for growth, marking a shift from recent quarters where broader semiconductor market conditions had weighed on equipment spending. The company generated $1.69 billion in operating cash flow during the quarter and achieved record DRAM revenue, underscoring strength in memory chip manufacturing.
Looking ahead, Applied Materials forecast second-quarter revenue of $7.65 billion plus or minus $500 million, with the midpoint representing a 9% sequential increase. The company projected earnings per share of $2.64 plus or minus $0.20, suggesting continued momentum in the current quarter.
"We are seeing unprecedented demand for the chips and manufacturing equipment needed to power AI computing," Dickerson said in a statement accompanying the results. "Our positioning across the entire chip manufacturing process allows us to capture this opportunity as customers accelerate capacity expansions."
The guidance comes as Applied Materials trades at approximately $328 per share, giving the company a market valuation of roughly $261 billion. Despite recent volatility—the stock has declined about 3% in the past week—analysts maintain a largely positive outlook, with an average target price of $335.21 and 27 of 38 analysts rating the shares as buy or strong buy, according to market data.
The semiconductor equipment sector has emerged as a key beneficiary of the AI boom, as chipmakers race to add production capacity for advanced processors used in training and running AI models. Applied Materials' equipment is used across multiple stages of chip fabrication, from deposition and etching to inspection and metrology, positioning the company to benefit from increased spending throughout the manufacturing process.
Memory chip production, particularly for DRAM, has rebounded from a prolonged downturn as data center operators expand capacity to handle AI workloads. Applied Materials reported record DRAM revenue in the quarter, signaling the recovery in that segment is gaining momentum. DRAM and other memory technologies are critical components in AI servers and high-performance computing systems.
The company's profitability metrics remain strong, with a trailing 12-month operating margin of 28.4% and return on equity of 35.5%. Applied Materials also pays a dividend of $1.78 per share, yielding approximately 0.54% at current prices, providing additional return for shareholders.
Analysts at major investment firms have highlighted Applied Materials' diversified portfolio as a competitive advantage compared to peers that focus on specific equipment categories. The company's presence across multiple manufacturing processes reduces dependence on any single market segment and provides exposure to various technology cycles.
Looking beyond the current quarter, management's forecast of more than 20% growth in the semiconductor equipment business for calendar 2026 represents a significant acceleration from recent quarters. This outlook assumes sustained AI infrastructure spending, which many semiconductor industry observers expect to continue as cloud service providers and enterprises expand their AI capabilities.
Investors will be watching for signs of this demand materializing in the coming months, particularly as competitors in the semiconductor equipment space report their own results. The industry's performance could serve as a leading indicator for broader technology capital expenditure trends, which have shown signs of recovery after a challenging 2024.
Applied Materials is scheduled to host an earnings call to discuss the results in more detail, where management is likely to provide additional color on customer demand patterns, capacity expansion plans, and the competitive landscape. The company's fiscal year ends in October, positioning it to provide insight into full-year industry trends.