Applied Materials’ AMAT Applied Global Services (“AGS”) business is becoming an increasingly important source of recurring and higher-margin revenues. In the third quarter of fiscal 2026, AGS generated a record $1.78 billion in revenues, up 22% year over year, driven by growth in subscription services and strong transactional parts demand. AGS also delivered a 35.6% gross margin and 30.1% operating margin, up 180 basis points and 280 basis points, respectively, from a year earlier.
The strategic value of AGS extends beyond its revenue contribution. As semiconductor manufacturers operate fabs at high utilization and work to increase yield, output and ramp speed, AMAT is seeing greater demand for advanced service solutions. Management said most leading-edge logic and DRAM fabs are running at full capacity, while utilization is rising across other markets as well. This creates opportunities for AGS to help customers optimize the performance of their existing high-volume manufacturing operations.
Management now expects AGS revenues to grow more than 20% in 2026 and sees a sustainable long-term annual growth rate in the mid-teens. That outlook reflects the increasing value of advanced services as customers seek to improve fab yields and output while ramping new capacity. AMAT is therefore expanding AGS alongside the broader semiconductor capacity buildout rather than relying solely on new equipment sales.
As a result, AGS is becoming an important part of Applied Materials’ long-term earnings model. Its combination of subscription services, parts demand, advanced AI-enabled services and expanding margins provides AMAT with growing revenues by supporting customers throughout their manufacturing operations.
With AGS expected to grow more than 20% in 2026 and at a sustainable mid-teens rate over the long term, the segment should remain an important contributor to AMAT’s growth and profitability as AI drives higher semiconductor capacity, utilization and yield requirements.
How Competitors Fare Against AMAT
Since AMAT serves its own installed base through the AGS business, so there are no competitors in this segment. But in the broader product category, AMAT competes with ASML Holding ASML and Lam Research LRCX.
ASML is experiencing strong demand from DRAM and logic customers, which are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML noted that multiple DRAM customers are adopting EUV lithography, which helps shorten cycle time and lower costs. However, AMAT offers a broad range of WFE products that do not compete directly with ASML and Lam Research, making it a stock worth holding.
Lam Research secured multiple critical etch wins at a major DRAM manufacturer with its new Akara etch system, which supports 3D DRAM architectures. This was supported by LRCX’s customer investments in DDR5, LPDDR5 and high-bandwidth memory. Additionally, Lam Research’s Aether dry-resist technology was recently selected as the production tool of record for a leading DRAM customer, securing a foothold in this high-growth segment.
AMAT’s Price Performance, Valuation and Estimates
Shares of Applied Materials have surged 86.8% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 24.9%.
AMAT YTD Performance Chart
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From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 8.81X, higher than the industry’s average of 4.95X.
AMAT Forward 12-Month (P/S) Valuation Chart
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The Zacks Consensus Estimate for Applied Materials’ fiscal 2026 and 2027 earnings implies year-over-year growth of 35% and 42.8%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward over the past 30 days.
Image Source: Zacks Investment Research
Applied Materials currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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