Applied Materials NASDAQ: AMAT CFO Brice Hill said demand signals tied to artificial intelligence-driven semiconductor investment remain “extremely strong,” with leading-edge logic, DRAM, and advanced packaging currently constrained by capacity and cleanroom space. Speaking at the Canaccord Genuity Tech and Industrial Conference, Hill emphasized that the company is seeing customers push for more advanced compute and memory, supported by large and rising data center AI capital expenditures from major cloud service providers.
AI demand and capacity constraints
Hill pointed to what he described as a major increase in cloud service provider investment, citing “top cloud service provider investments in data center AI CapEx” of $600 billion this year, projected to rise to $700 billion next year. He said Applied is seeing customer pull for “more advanced logic, more DRAM, and more advanced packaging solutions,” and characterized those three areas as constrained at the leading edge.
He added that utilization is effectively full at leading-edge nodes, saying Applied sees “100% utilization across all the leading edge nodes.” While the discussion referenced industry expectations for strong silicon growth into 2026 and beyond, Hill framed the near-term ramp as “metered by space” at leading logic and DRAM fabs, suggesting the constraint could persist for more than a year.
Tool visibility extending into 2027 and supply chain readiness
Hill said Applied is already seeing customers schedule tool slots into 2027 and is pushing for longer-range planning. According to Hill, Applied has been working with customers to improve visibility to two years for equipment needs and then relay that demand signal to its supply base, which he said includes more than 2,000 suppliers.
He described two layers of supplier planning: two-year visibility for capacity and hiring decisions, and part-level detail within one year to ensure suppliers can meet specific needs. Hill said the two-year visibility request is made of all customers, but noted that longer-range visibility can be more difficult among a broader set of China customers, while plans from the largest leading-edge logic, DRAM, and NAND customers are “very complete.”
Addressing the industry’s ability to support a rapid expansion in wafer fab equipment demand, Hill said Applied has continued supply chain work since the COVID period, including regional resiliency efforts, reducing sole-source dependencies, expanding capacity, increasing inventory, and improving supplier signaling. He said the company does not currently see roadblocks preventing the supply chain from supporting the expected lift.
Asked about potential helium constraints amid geopolitical developments, Hill said Applied had reviewed the issue and does not believe helium will be a constraint for the company “at this point in time,” while noting that customer usage could differ.
Memory and advanced packaging: HBM as a key driver
On the leading-edge foundry side, Hill said data centers now represent about 30% of wafer demand at the leading edge, which he said has “eclipsed demand for PC components.” He added that Applied expects leading-edge data center demand to overtake smartphone components by 2029. Hill also offered an example of the rising complexity of planned AI systems, citing a 2027 GPU system with double the GPUs of a previous system, about 50% higher transistor count per GPU, and 33% more memory per GPU.
In DRAM, Hill said high-bandwidth memory (HBM) is becoming a meaningful portion of production, estimating that about 15% of DRAM wafer starts are currently allocated to HBM. He called HBM a “double opportunity” for equipment demand because HBM is more wafer-area intensive—about three times as much wafer area for the same amount of memory—and because stacking requires additional processing.
Hill said Applied estimates approximately 19 extra steps for stacking HBM, with 15 of those being equipment steps where Applied provides solutions. He also stated that Applied sells “more than 50% of the value of the equipment” used in those additional packaging steps for HBM. He added that customers are working to accelerate floor space to add capacity, and that future technology inflections could include additional stacking and bonding solutions in which Applied expects to participate.
Hill acknowledged hearing about customers upgrading tools to optimize cleanroom space, saying Applied has heard of such efforts in both logic and DRAM as customers try to maximize output.
Discussing advanced packaging performance, Hill said 2024 was “a very strong year,” including what he described as an initial HBM equipment build-out on the DRAM side of about $700 million. He said that was “a little less in 2025” after the initial build-out slowed. Looking forward, Hill said advanced logic, DRAM, and advanced packaging are in the “fast lane,” expected to grow faster than the broader semiconductor equipment market growth Applied has discussed, while ICAPS and NAND are expected to grow more slowly. He reiterated that Applied expects ICAPS to be approximately flat this year.
NAND and China ICAPS: different growth profiles
Hill described NAND as a market with strong bit demand—he said Applied has previously cited high-teens bit growth—but with limited need for additional wafer starts due to technology-driven increases in bit density. He estimated NAND wafer starts at about 1.4 million per month and said they have been “roughly flat” over the last four or five years. Companies may add capacity for additional layers, he said, but do not need to expand wafer starts to increase bit supply at current rates, which he said keeps NAND at a lower equipment growth level in the near term.
On ICAPS and China, Hill pushed back on the idea that Applied is “overexposed,” explaining that ICAPS refers to mature-node technologies—IoT, communications, automotive, power, and sensors—often built on nodes such as 28nm, 40nm, 45nm, and 60nm. He said Applied has a strong position in those nodes and that, historically, China has typically represented “25%-30%” of Applied’s equipment and services business, with most of that demand tied to ICAPS. Hill said there was a brief period when China was a higher percentage—into the 40% range—during a DRAM build-out in China.
Hill said the company expects the ICAPS business in China to be flat in the near future following significant investment and capacity expansion, and highlighted Applied’s position at 28nm. Asked about possible relaxation of restrictions, Hill said he had heard nothing from Washington, D.C., and noted that current trade rules constrain U.S. companies more than non-U.S. companies. He said any ability to serve constrained customers again would be upside to Applied’s outlook.
Services growth, margins, EPIC, and capital returns
Hill said Applied’s services business grew 15% year-over-year in the most recently reported quarter and that the company’s outlook remains for “low double digits” growth. He attributed services growth to three recurring drivers: expansion of the installed base (which he said typically grows 5%-10% annually depending on the market), new service products added to the portfolio, and rising attach rates as customers use more services—particularly in new factory locations where qualified labor is needed to ramp operations.
He also noted a reporting change: Applied moved its 200mm equipment business out of services and into the semiconductor equipment segment. As a result, he said, services should now be viewed as “pure recurring revenue,” consisting of spares and services tied to existing tools. Hill said about two-thirds of the services business is under contract, with average contracts of 2.9 years and renewal rates “over 90%,” supporting confidence in the growth outlook.
On profitability, Hill said the company’s portfolio becomes more valuable over time as Applied invests in R&D and develops higher-complexity and more integrated solutions. He pointed to segment reporting that shows separate gross margins for equipment and services, and said equipment gross margin was 54.5% in the recent quarter. He also said Applied has invested in a more disciplined pricing process in recent years, contributing to pricing increases and supporting margin improvement over time.
Hill discussed Applied’s EPIC initiative as a long-range R&D investment designed to speed innovation by enabling customers to collaborate on future technologies in new lab space in Sunnyvale near the company’s Santa Clara campus. He said the facility is intended for work “3 and 4 generations out” and that successful collaboration can lead to tools being designed into customer roadmaps for multiple generations. Hill said Micron is joining the EPIC lab as part of the collaboration process, alongside Samsung as another founding partner, and that the company expects to open the facility in the fall.
On operating leverage, Hill said Applied expects to raise spending at a slower rate than revenue growth, while continuing to invest organically in lab and manufacturing space, hiring and training for tool installs and service needs, and new R&D programs with high confidence in returns. He said Applied tends to reinvest nearly half of its profits and return the rest to shareholders via buybacks and dividends.
Hill reiterated the company’s capital return framework, stating Applied expects to return 80% to 100% of free cash flow to investors over time, though not necessarily every quarter due to fluctuations from capital investments. He said distributions over the last year were about 86% of free cash flow.
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.
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