Semiconductor equipment sector rallies on $1T industry forecast

Applied Materials' chief executive has delivered an extraordinarily bullish outlook for the global semiconductor industry, projecting revenues will reach $1 trillion in 2026—several years ahead of previous forecasts—as artificial intelligence spending accelerates across the chipmaking ecosystem.

CEO Gary Dickerson told investors on the company's earnings call that the semiconductor equipment business expects to grow more than 20% in calendar year 2026, with demand weighted toward the second half of the year. The forecast, which comes despite a modest 2% year-over-year revenue decline to $7.01 billion in Applied's first fiscal quarter, has energized the entire semiconductor equipment sector.

The accelerated timeline for the $1 trillion milestone reflects what Dickerson described as an unprecedented surge in AI computing investments. Demand is particularly concentrated in three areas: leading-edge logic chips, high-bandwidth memory (HBM), and advanced packaging technologies. These segments are critical for the massive data centers required to power generative AI applications.

Applied Materials reported GAAP earnings per share of $2.54 for the first quarter, up 75% from a year earlier, while non-GAAP EPS held steady at $2.38. The company delivered record revenue in its DRAM business and achieved record services and spares revenue. Cash from operations reached $1.69 billion, with $702 million returned to shareholders through buybacks and dividends.

For the second fiscal quarter, Applied guided to revenue of $7.65 billion plus or minus $500 million, with non-GAAP diluted EPS expected at $2.64 plus or minus $0.20.

The broader semiconductor equipment market is expected to reach $145 billion in sales in 2026, marking a 9% increase over 2025, according to industry analysis. AI chips could account for roughly half of the industry's total revenue in 2026, despite representing a small fraction of unit volume, underscoring the premium nature of these advanced components.

Competitors in the space are already benefiting from the same tailwinds. KLA Corporation and Lam Research have both seen analyst price target increases in recent weeks, with firms citing strength in AI infrastructure and advanced packaging demand. KLA's sales in advanced packaging systems grew more than 70% in 2025, highlighting the broader secular trend benefiting the entire equipment ecosystem.

The optimism marks a sharp turnaround from recent concerns about the durability of the semiconductor cycle. Despite trading near its 52-week high of $344.60, Applied Materials shares carry a forward price-to-earnings ratio of 33.67, suggesting investors are already pricing in substantial growth. The stock, which has 27 analysts rating it as either strong buy or buy versus just 10 holds, closed at $328.39 on Wednesday.

Dickerson's $1 trillion prediction is particularly notable because it brings forward what many analysts had previously expected would be a late-decade milestone. The acceleration reflects how AI applications—particularly large language models and image generation tools—are driving demand for increasingly sophisticated chips that require multiple exposure steps and complex manufacturing processes.

The equipment manufacturers are positioned as the primary beneficiaries of this capital expenditure boom. Unlike chip designers whose products become commoditized over time, equipment suppliers like Applied Materials, KLA, and Lam Research operate in an oligopolistic market with high barriers to entry and recurring revenue from software and service contracts.