AI demand lifts a high-quality toolmaker
- Management now expects the semiconductor equipment business to grow more than 30% in calendar 2026.
- Large customers are giving rolling 8-quarter forecasts, which gives AMAT better demand visibility.
- Applied Global Services is becoming a stronger repeat-revenue base, with a mid-teens sustainable growth target.
- The ramp is risky because the 2026 growth target is weighted toward the second half of the year.
- China was 27% of Q2 fiscal 2026 revenue, so export controls still matter.
- Two customers made up about 21% and 15% of revenue in the first half of fiscal 2026.
AI is pulling orders forward
Applied Materials is one of the key suppliers behind the AI chip buildout. Chipmakers use its tools to shape, add, remove, measure, and connect tiny layers of material on wafers. That work matters more as chips move to Gate-All-Around transistors, backside power, High-Bandwidth Memory, and advanced packaging.
The current thesis improved after Q2 fiscal 2026. Management raised its calendar 2026 growth outlook for the semiconductor equipment business from over 20% to more than 30%. It also raised the long-term growth view for Applied Global Services from low-double-digits to mid-teens. Large customers are now giving rolling 8-quarter forecasts, which supports the idea that this is not only a one-quarter surge.
The bear case is about timing and expectations. The more than 30% growth target is heavily weighted to the back half of calendar 2026. That means AMAT has to build, ship, install, and support a lot of tools in a short window. If suppliers or customers miss schedules, the story can wobble.
There is also a price question. The company is high quality, profitable, and tied to AI, but the market knows that. A good business can still be a tough stock if investors already expect near-perfect execution.
Machines first, service for years
AMAT makes money by selling chipmaking equipment to semiconductor manufacturers. These are large, complex tools used inside fabs, which are factories that make chips. The company also sells services, spare parts, and factory automation software through Applied Global Services.
The equipment business is cyclical because chipmakers spend in waves. When customers build new fabs or move to a new chip design, orders can rise fast. When customers pause spending, revenue can slow. This is why the second-half 2026 ramp matters so much.
The service business smooths that cycle. AMAT has long-term service agreements with an average subscription length of 2.8 years and renewal rates above 90%. As the installed base of tools grows, AGS can grow even when new tool demand cools.
The moat comes from breadth. AMAT sells tools across many steps in chipmaking, so it can help customers tune several processes together. That is valuable when each new chip generation gets harder to build.
Where AMAT is aiming
Leading-edge logic
AMAT sells tools for Gate-All-Around transistors and backside power delivery. It generated over $2.5 billion from GAA nodes in fiscal 2024 and expected that to about double in 2025.
DRAM and HBM
DRAM is memory used in computers and AI systems. High-Bandwidth Memory is a key AI driver, and AMAT's related packaging revenue grew to over $700 million in fiscal 2024.
Advanced packaging
Advanced packaging connects multiple chips so they act like one larger system. This business generated nearly $1.7 billion in fiscal 2024 revenue, tripled over four years, and is expected to double again in coming years.
ICAPS
ICAPS covers chips for IoT, communications, autos, power, and sensors. Management expects this market to be flat to slightly higher in calendar 2026, so it is not driving the AI surge right now.
Applied Global Services
AGS sells services, spares, and factory automation software. Management now sees sustainable annual growth in the mid-teens, helped by a larger installed base.
Display and adjacent markets
This smaller area includes display tools and adjacent businesses. It gives AMAT exposure to OLED adoption in IT devices, but it is not the main thesis today.
The revenue mix
Segment mix uses Q2 fiscal 2026 revenue from the latest 10-Q: Semiconductor Systems $5.965 billion, AGS $1.665 billion, and Other $280 million. Customer concentration is high, with two customers at about 21% and 15% of first-half fiscal 2026 revenue.
What can break the thesis
Back-half ramp slips
High impact · Medium oddsManagement expects more than 30% calendar 2026 growth in the semiconductor equipment business, but that growth is weighted toward the second half. AMAT needs suppliers, logistics, customer cleanrooms, and field service teams to line up at the same time. A delay in any one link could push revenue into later periods.
AI strength hides weak normal markets
Medium impact · High oddsAI-related leading-edge logic, DRAM, and advanced packaging are strong. But ICAPS is expected to be flat to slightly higher, which means many non-AI chip markets are still soft. If AI demand slows before ICAPS recovers, growth could fade faster than bulls expect.
China rules tighten again
High impact · Medium oddsChina was 27% of Q2 fiscal 2026 revenue. The prior BIS settlement reduced one legal overhang, and the DOJ and SEC inquiries were closed, but export controls remain a live business risk. New U.S. rules could shrink AMAT's accessible market again.
Too much revenue depends on a few buyers
High impact · Medium oddsTwo customers accounted for about 21% and 15% of revenue in the first half of fiscal 2026. That gives AMAT strong visibility when those customers are spending. It also creates risk if one customer delays a fab, changes tool choices, or cuts capital spending.
Technology share gains do not show up
High impact · Medium oddsThe growth story depends on AMAT winning important positions in Gate-All-Around, backside power, HBM, and advanced packaging. If rivals take more share than expected, the AI equipment cycle may still be strong while AMAT captures less of it. That would pressure both growth and investor confidence.
The stock prices in perfection
Medium impact · Medium oddsAMAT is profitable and financially strong, but investors already see the AI opportunity. If results are merely good rather than great, the stock can lag. This is most important around quarters where guidance needs to prove the more than 30% growth path.
In one breath
What does Applied Materials actually make?
Applied Materials makes equipment used inside chip factories. Its tools help deposit, remove, modify, measure, and connect materials on silicon wafers so customers can build advanced chips.
Why is Applied Materials tied to AI?
AI chips need leading-edge logic, advanced memory, and advanced packaging. AMAT sells tools used in all three areas, so AI data center spending can drive demand for its equipment.
Is Applied Materials a services company too?
Yes. Applied Global Services sells service contracts, spare parts, and factory automation software. This business is more repeatable than new tool sales and management now targets mid-teens sustainable annual growth.
What is the biggest near-term risk for AMAT?
The biggest near-term risk is execution. Management's calendar 2026 semiconductor equipment growth target is more than 30%, and much of that growth is expected in the second half of the year.