Applied Materials, Inc. (NASDAQ:AMAT) stock fell in premarket trading Friday after the chip equipment maker reported third-quarter results after Thursday’s market close.
Applied Materials Posts Record Margins
Applied Materials reported third-quarter revenue of $9.12 billion, above analyst estimates of $8.99 billion. Adjusted earnings of $3.50 per share also topped estimates of $3.40.
Revenue rose 15% sequentially and 25% from a year earlier. Adjusted gross margin reached a record 50.4%, up 150 basis points year over year. That marked the company’s 13th straight quarter of year-over-year gross margin expansion.
Adjusted operating margin also hit a record 34%, up 330 basis points from a year earlier.
The company generated more than $3 billion in operating cash flow and $2.3 billion in free cash flow. Applied Materials returned $860 million to shareholders through $420 million in dividends and $440 million in share repurchases.
The company had $12.8 billion remaining under its buyback authorization. It continues to target returning 80% to 100% of free cash flow to shareholders.
AI, DRAM Demand Fuel Semiconductor Growth
Semiconductor Systems revenue reached a record $7 billion, up 18% sequentially and 27% year over year. Growth was driven by capacity additions for gate-all-around and FinFET technologies.
DRAM revenue, including high-bandwidth memory packaging, jumped 52% from a year earlier to a record. The company also reported record revenue across several Materials Engineering businesses.
Semiconductor Systems adjusted gross margin rose 190 basis points year over year to 55.4%. Adjusted operating profit climbed 45% to a record $2.7 billion.
Applied Global Services revenue rose 22% to a record $1.8 billion, helped by subscription services and strong demand for transactional parts. Its gross margin increased 180 basis points to 35.6%, while operating margin rose 280 basis points to 30.1%.
China accounted for 26% of Semiconductor Systems and Applied Global Services revenue. Applied Materials expects growth in the region during 2026, supported by 28-nanometer foundry investment.
Meanwhile, the company launched six products during the quarter. The new systems target DRAM, high-bandwidth memory, advanced packaging and e-beam applications.
Applied Materials Forecast Tops Estimates
During the earnings call, Applied Materials said the rapid buildout of AI infrastructure is giving the company unusually strong visibility into future demand.
Management said some customer conversations now extend to 2030, while longer-term commitments and rolling eight-quarter forecasts have improved planning.
Based on what it called “unprecedented visibility” from customers, Applied Materials said it expects another strong record year in 2027.
Applied Materials expects fourth-quarter revenue of $10.25 billion, plus or minus $500 million. That compares with analyst estimates of $9.54 billion.
The company forecast adjusted earnings of $3.82 to $4.22 per share, compared with estimates of $3.69.
Applied Materials expects Semiconductor Systems revenue of $7.9 billion and Applied Global Services revenue of $1.84 billion.
Management expects AI infrastructure spending to support multiyear growth in leading-edge logic, DRAM and advanced packaging. Those three areas are expected to represent about 80% of wafer fab equipment growth in 2026 and 2027.
The company has nearly doubled its manufacturing footprint and aims to double quarterly systems output by 2028.
AMAT Price Action: Applied Materials shares were down 5.41% at $505.62 during premarket trading on Friday, according to Benzinga Pro data. The stock has surged 183.97% over the past 12 months.
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