NEW YORK, February 16, 2024 – While Wall Street spent the week bracing for potential fallout from AI disrupting software companies, Applied Materials delivered a potent reminder: someone still has to build the chips powering this revolution.
Shares of Applied Materials surged 12% on Friday after the semiconductor equipment giant significantly exceeded Q1 fiscal 2026 estimates and issued unexpectedly strong guidance, forecasting more than 20% growth in its semiconductor equipment business this calendar year. In a market hungry for companies genuinely benefiting from AI—not just those claiming to be—Applied Materials provided concrete evidence.
The Numbers Tell the Story
The results paint a clear picture: demand for AI chips is accelerating, and Applied Materials is uniquely positioned to capitalize on that growth.
Q1 revenue reached $7.01 billion, surpassing the consensus estimate of $6.88 billion by nearly 2%. Non-GAAP earnings per share came in at $2.38, exceeding Wall Street’s expectation of $2.21 by 7.7%.
Gross margins expanded to 49.1%, the highest level the company has seen in 25 years. This wasn’t a one-time event; Applied Materials reported record revenue in its Semiconductor Systems division for DRAM and record services revenue in its Applied Global Services segment, which grew 15% year-over-year to $1.56 billion.
However, it was the Q2 guidance that truly ignited investor enthusiasm. The company anticipates approximately $7.65 billion in revenue and $2.64 in non-GAAP EPS—both well above the consensus expectations of $7.03 billion and $2.29, respectively.
This isn’t a modest beat; it’s a bold statement of confidence.
“Applied Materials delivered strong results in our fiscal first quarter, fueled by the acceleration of industry investments in AI computing,” said CEO Gary Dickerson. “The need for higher performance and more energy-efficient chips is driving high growth rates for leading-edge logic, high-bandwidth memory and advanced packaging.”
Why This Matters Right Now
The timing of these results is particularly significant. For the past two weeks, markets have been rattled by fears of AI-driven disruption—software stocks have plummeted, real estate has suffered, and even trucking companies have seen sell-offs amid concerns that AI tools could automate their businesses. The S&P 500 is on track for its worst week since November.
Applied Materials cut through the uncertainty with a simple message: the physical infrastructure buildout for AI isn’t slowing down—it’s accelerating.
Dickerson projected that global semiconductor revenues could “potentially reach $1 trillion in 2026”—earlier than most industry forecasts had predicted. The company plans to launch over a dozen new products this year, and its cold field emission (CFE) E-beam technology business is expected to double revenue to over $1 billion in calendar 2026.
CFO Brice Hill added that the company has “nearly doubled our system manufacturing capability, strengthened our supply chain and increased our inventories in preparation for market growth” over the past several years.
Morgan Stanley analyst Joseph Moore captured the shifting sentiment, noting ahead of the report that “Relative to three months ago, the demand environment has improved meaningfully, with supply-chain checks pointing to increased near-term strength.”
How to Play the Semiconductor Equipment Boom
Applied Materials’ results aren’t isolated; they validate the broader semiconductor equipment thesis. Here are several ways to gain exposure:
- Applied Materials (AMAT) — Trading around $370 after Friday’s surge, the stock is up 32% year-to-date. Wall Street is rapidly raising targets, with Citi lifting its price target to $400 from $250, UBS to $405 from $285, and B. Riley to $400. Even after today’s move, these targets suggest 8-10% additional upside. With the company’s guidance for 20%+ equipment revenue growth, the stock, at roughly 27x forward earnings, appears reasonably valued and remains the best pure-play on AI’s physical layer.
- Lam Research (LRCX) — Currently trading around $231, Lam is Applied Materials’ closest peer in etch and deposition tools. The company reported strong results in late January, guiding for 10-15% wafer fab equipment spending growth in 2026. With a consensus “Strong Buy” rating and a $237 average price target, Lam offers a direct read-across from Applied Materials’ results. It’s cheaper on a relative basis and reports next in late April.
- KLA Corporation (KLAC) — At roughly $1,451, KLA is the leader in inspection and metrology. Its Q2 results in January showed revenue of $3.3 billion (beating the $3.25 billion consensus) with industry-leading margins—62.8% gross, 43.6% operating. Analyst targets have been raised to a median of $1,665. As chip complexity increases, KLA’s process control tools become increasingly critical.
- ASML Holding (ASML) — Trading near $1,407, the Dutch lithography monopoly is the ultimate gatekeeper for advanced chipmaking. ASML’s record €13.2 billion in Q4 orders (reported in late January) already confirmed the demand picture that Applied Materials is now reinforcing. For investors seeking exposure to the most irreplaceable company in the semiconductor supply chain, ASML is a key player.
- iShares Semiconductor ETF (SMH) — At around $409, SMH offers diversified exposure to the top 25 U.S.-listed semiconductor names.
The ETF is up over 60% in the past year and holds significant positions in AMAT, LRCX, KLAC, and ASML, alongside chip designers like Nvidia and Broadcom. For investors who prefer not to pick individual winners, SMH provides a clean way to own the entire AI infrastructure stack.
The Bear Case (and Why It’s Manageable)
Applied Materials’ report wasn’t without its caveats. Revenue was down 2% year-over-year. China revenue declined 7% and now represents 27% of semiconductor equipment sales, down from previous levels—a direct result of ongoing U.S. export restrictions. The company also disclosed a $252.5 million settlement with the Department of Commerce over alleged export control violations, although both the DOJ and SEC closed their inquiries without further action.
Valuation is also a consideration. At $370, AMAT trades at roughly 27x forward earnings, after a stock that has nearly doubled in the past year. Options pricing before the report suggested a 6% move in either direction—indicating traders anticipated a significant reaction but were unsure of its direction.
However, the counterargument is compelling: Applied Materials just guided Q2 revenue 9% above expectations, projects 20%+ growth for the full year, and is at the center of what Dickerson called a “tipping point” in AI-driven semiconductor demand. Investing in a company accelerating into a multi-year capex supercycle justifies a 27x earnings multiple.
What to Watch
Three catalysts are worth monitoring. First, Applied Materials’ fiscal Q2 results (expected in mid-May) will reveal whether the $7.65 billion guidance holds up—any upward revision would likely drive targets higher. Second, industry bellwether TSMC’s monthly revenue data in March and April will provide real-time confirmation of foundry demand trends. And third, the broader AI infrastructure spending picture will become clearer as Microsoft, Google, Amazon, and Meta release their Q1 2026 capex numbers in late April.
The AI hardware buildout is no longer just a narrative. Applied Materials has provided the hard numbers to back it up—and the market is taking notice.
