Applied Materials (NASDAQ:AMAT) reported record fiscal third-quarter 2026 results, with revenue, operating profit and non-GAAP earnings per share reaching new highs as demand for AI-related semiconductor manufacturing equipment continued to strengthen.
President and CEO Gary Dickerson said the company recorded its highest quarter-over-quarter revenue growth in its history, supported by the global expansion of AI infrastructure and demand for advanced chips. He said customers have found ways to address clean-room space constraints and have increased their demand for tool deliveries, prompting the company to raise its revenue-growth expectations for calendar 2026.
Record Results and Fourth-Quarter Outlook
Applied Materials generated fiscal third-quarter revenue of $9.1 billion, up 15% sequentially and 25% from a year earlier. Non-GAAP gross margin rose to 50.4%, increasing 40 basis points from the prior quarter and 150 basis points year over year.
Non-GAAP operating margin reached a record 34%, up 190 basis points sequentially and 330 basis points year over year. The company reported record non-GAAP EPS of $3.50, up 22% sequentially and 41% from the prior-year period.
Chief Financial Officer Brice Hill said fiscal Q3 marked the company’s 13th consecutive quarter of year-over-year gross-margin expansion. He attributed the performance to the value of the company’s products and services in the AI ecosystem, as well as its value-based pricing approach and operating leverage.
For the fiscal fourth quarter, Applied Materials projected:
- Revenue of $10.25 billion, plus or minus $500 million, representing 51% year-over-year growth at the midpoint.
- Non-GAAP EPS of $4.02, plus or minus $0.20, representing 85% year-over-year growth at the midpoint.
- Semiconductor Systems revenue of approximately $7.9 billion, up 62% year over year.
- Applied Global Services revenue of about $1.84 billion, up 22% year over year.
- Other revenue, primarily display revenue, of roughly $510 million.
The company expects fourth-quarter non-GAAP gross margin of about 50.4% and non-GAAP operating expenses of approximately $1.58 billion. Hill noted that fiscal Q1 2027 will include 14 weeks, contributing to a larger-than-usual increase in operating expenses.
AI Demand Drives Logic, DRAM and Packaging Investment
Management said leading-edge foundry logic, DRAM and advanced packaging are expected to account for about 80% of wafer-fab-equipment growth during calendar 2026 and 2027. Dickerson identified these areas as the semiconductor segments with the largest impact on AI computing performance, power efficiency and cost.
The company expects its advanced packaging revenue to rise more than 70% in calendar 2026. During the quarter, it introduced products including the Centura Prime Epi system for high-performance DRAM, the Producer Avila platform for higher-performance and higher-layer-count high-bandwidth memory, and new plating, CMP and e-beam systems for advanced packaging.
Semiconductor Systems revenue was a record $7 billion, up 18% sequentially and 27% year over year. Foundry logic revenue reached a record level, aided by capacity additions for gate-all-around and FinFET technologies. DRAM revenue, including high-bandwidth-memory packaging, rose 52% year over year to a record level.
Hill said the company expects a “very significant increase” in DRAM revenue in the second half of calendar 2026 as customers expand clean-room capacity. Management also said it expects strong growth in leading-edge logic and advanced packaging, while seeing ICAPS markets return to growth in 2027. ICAPS includes IoT, communications, automotive, power and sensor markets.
China accounted for 26% of Semiconductor Systems and Applied Global Services revenue during the quarter. Applied Materials now expects China revenue to increase in calendar 2026, led by investment in 28-nanometer foundry logic.
Services, Capacity and Margin Strategy
Applied Global Services, or AGS, reported record revenue of $1.8 billion, up 22% from a year earlier, driven by subscription-service growth and demand for transactional parts. Segment gross margin was 35.6%, up 180 basis points year over year, while operating margin increased 280 basis points to 30.1%.
Dickerson said more than 37,000 chambers in the field are connected to the company’s AIx software capabilities. The company uses AI-powered monitoring, diagnostics and predictive analytics to help customers improve yields and optimize high-volume manufacturing operations. Applied expects AGS revenue to grow more than 20% in calendar 2026 and to sustain a mid-teens annual growth rate over the longer term.
The company also expects its process diagnostics and control business to grow more than 50% in calendar 2026, supported by demand for e-beam and optical inspection technologies.
To support customer ramps, Applied Materials added more than 1,500 employees during the quarter across manufacturing and AGS customer-support operations, including more than 1,000 customer-support engineers. The company has nearly doubled its manufacturing space over recent years and is preparing to double quarterly system-output capacity from current levels by 2028. Hill emphasized that the capacity target is not a revenue forecast.
Applied generated more than $3 billion in operating cash flow during the quarter and $2.3 billion in free cash flow after $707 million in capital expenditures. It returned $860 million to shareholders through $420 million in dividends and $440 million in share repurchases. The company said $12.8 billion remained under its repurchase authorization.
EPIC Center Advances Co-Innovation Plan
The company is preparing to begin operations at its EPIC Center in Silicon Valley, an R&D facility intended to accelerate collaboration with chipmakers, system companies, universities and technology partners. Dickerson said the first R&D tool was expected to enter the clean room the following week, with operations set to begin in the coming months.
Since the prior earnings call, Broadcom joined the EPIC program as an innovation partner focused on advanced chip packaging technologies. Applied also announced partnerships with SCREEN and the University of California, Berkeley, bringing total announced EPIC engagements to 11.
Management said customers are providing more detailed rolling eight-quarter forecasts and, in some cases, discussing technology roadmaps and capacity requirements extending much further. Hill said the company expects calendar 2027 to be another strong year, while Dickerson said Applied’s technology and service portfolio positions it to benefit from continued demand for AI infrastructure.
About Applied Materials (NASDAQ:AMAT)
Applied Materials, Inc is a U.S.-based supplier of equipment, services and software used to manufacture semiconductor chips, flat panel displays and other advanced materials. Headquartered in Santa Clara, California, the company designs and sells capital equipment and related technologies that enable production of integrated circuits, display panels and materials used across the electronics supply chain.
Applied Materials’ offerings include process equipment and factory software that support critical steps in device fabrication, such as deposition, etch, implantation, inspection and metrology, as well as systems for packaging and advanced heterogeneous integration.
