Applied Materials Earnings: Hop Aboard the AI Spending Rocket Ship

Key Morningstar Metrics for Applied Materials

• Fair Value Estimate: $380.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Applied Materials’ Earnings

Applied Materials AMAT reported strong January-quarter results and provided an impressive outlook for calendar 2026. Management expects more than 20% growth in equipment sales in 2026, aligning with peer Lam Research’s market commentary provided in late January.

Why it matters: We expect a massive wafer fabrication equipment growth cycle over the next three years. Artificial intelligence infrastructure demand is immense, and supply is scarce. We expect a rapid pace of chip capacity buildouts over the coming years to fuel great demand for Applied.

• In 2025, we predicted an AI-driven growth cycle for WFE. Our expectations for the magnitude of growth have risen significantly since then. We now expect close to 20% growth across 2026 and 2027, up from our prior expectations for high-single-digit growth.
• We believe medium-term growth will be led by investments in cutting-edge logic and DRAM chip capacity. We see huge spending plans by TSMC (logic), SK Hynix (DRAM), and Micron (DRAM) as constructive for strong future orders for Applied.

The bottom line: We raise our fair value estimate for wide-moat Applied Materials to $380 per share to account for our higher AI growth cycle forecast. Shares rose 13% after hours on the 2026 outlook, and look fairly valued at our new valuation.

• Applied shares are up 50% in the last three months (even before the earnings reaction). We now agree with this appreciation, which has to be supported by immense double-digit growth in the years to come.
• Investors likely have concerns over the durability of AI spending. To us, the severe AI chip supply constraints give us confidence for at least the next two years. We do not see demand limiting growth over this period; supply is the primary constraint on investment.