Applied Materials’ AMAT Semiconductor Systems segment emerged as the company’s primary growth engine in the past several quarters, driven by the rapid expansion of artificial intelligence infrastructure and increasing demand for advanced semiconductor manufacturing technologies.
AMAT’s semiconductor systems segment delivered record revenues of $5.97 billion during the second quarter of fiscal 2026, representing 10% year-over-year growth and 16% sequential growth. Profitability also strengthened, with gross margin expanding to 54.7% from 53.5% a year earlier and operating margin improving to 35.1% from 32.8%.
Revenue composition further highlights the shift toward AI-driven semiconductor investment. Foundry, logic and other applications contributed 67% of segment revenues, DRAM accounted for 29%, and flash memory represented just 4%. The higher contribution from foundry-logic and DRAM is increasingly driving demand for leading-edge logic chips, high-bandwidth memory and advanced packaging technologies.
Management believes that leading-edge foundry-logic, DRAM and advanced packaging will account for more than 80% of the year-over-year growth in wafer fabrication equipment spending during 2026. The company also introduced two new products designed for next-generation gate-all-around manufacturing. Trillium ALD and Precision Selective Nitride PECVD for reducing parasitic capacitance and improving chip performance-per-watt.
In memory, Applied Materials continues to benefit from accelerating AI-driven DRAM investments and expects further gains from future transistor and device architecture transitions. Meanwhile, advanced packaging remains another major growth opportunity, with packaging revenues expected to increase more than 50% in 2026.
How Competitors Fare Against AMAT
ASML Holding ASML and Lam Research LRCX are strong contenders in leading-edge logic chips, high-bandwidth memory and advanced packaging technologies.
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 in shortening cycle time and lowering 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 121.1% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 52.1%.
AMAT YTD Performance Chart
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From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 11.69X, higher than the industry’s average of 9.90X.
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 28% and 32%, 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 carries 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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This article originally published on Zacks Investment Research (zacks.com).