Applied Materials NASDAQ: AMAT executives highlighted continued momentum tied to artificial intelligence-related semiconductor demand, with strength concentrated in advanced logic, DRAM and advanced packaging, during a presentation at J.P. Morgan’s 54th annual Technology, Media and Communications Conference.
Tim Dao, senior vice president at Applied Materials and head of the company’s Applied Global Services, or AGS, business, said customers are focused on increasing factory output and improving “good die out” as AI-related demand drives capacity constraints across the semiconductor supply chain.
J.P. Morgan semiconductor and semiconductor capital equipment analyst Harlan Sur noted that Applied recently reported a stronger growth outlook, including an expected 30% increase in its systems business this calendar year, up from a prior outlook of 20% growth. Dao said the incremental strength was not primarily the result of a “pull-in” from 2027 into 2026, but instead reflected a combination of new capacity, factory conversions and productivity upgrades inside existing fabs.
AI Demand Drives Capacity and Productivity Push
Dao said customers are building out greenfield facilities, but also finding “creative” ways to add capacity more quickly. He cited examples including a customer procuring a completed shell from another customer, a 200-millimeter factory being repurposed into a packaging facility, and an older 2D NAND factory being converted into a DRAM factory.
He also said customers are replacing older, lower-throughput tools with higher-productivity platforms to remove bottlenecks in existing production lines.
“If a fab is fully installed or operating, every percent of utilization improvement that you can make in a factory is a huge lever for productivity for customers,” Dao said.
Dao said the company is seeing demand tied most closely to advanced foundry logic, DRAM, high-bandwidth memory and advanced packaging. He said about 80% of incremental wafer fab equipment spending this year is concentrated in advanced foundry logic, DRAM and advanced packaging, driven by AI demand. He added that Applied remains “incrementally positive” on ICAPS, the company’s mature and specialty technology segment, compared with three to six months ago, and sees that market as “flat up” in both China and non-China regions.
More Than 100 Projects in Pipeline
Sur referenced Applied’s recent comments that it has more than eight quarters of visibility and more than 100 projects in its pipeline. Dao said collaboration with customers has increased as suppliers and chipmakers seek to make capacity ramps smoother after the industry’s post-COVID supply challenges.
Dao said the largest portion of new greenfield capacity is in advanced logic and DRAM because “there’s just not enough physical capacity today.” He said advanced packaging is in a similar position as more front-end-like processes move into the back end, requiring more physical factory space.
NAND, Dao said, is different because customers can gain significant bit growth through technology upgrades rather than new wafer starts. He said Applied expects some greenfield NAND over time, but sees more leverage in NAND conversions than in other markets.
Applied Highlights Integrated Systems and DRAM Roadmap
Dao also discussed Applied’s integrated materials systems, or IMS, which combine multiple process steps on a single platform to avoid exposing wafers to ambient conditions. Sur noted that IMS-based platforms represent about 30% of Applied’s overall system sales.
Dao said IMS is a unique capability for Applied because of its broad product portfolio, but added that the goal is not simply to increase the percentage of IMS sales. Instead, he said Applied works with customers to integrate process steps where it makes sense, particularly at critical points in the chipmaking flow.
He said IMS platforms can increase service intensity because they combine different technologies, such as ALD, anneal, CVD and PVD, on a single platform, creating more complexity than a tool made up of common chambers.
On DRAM, Sur said Applied generated $1.7 billion in DRAM revenue in the most recent quarter, up 18% year over year. Dao said the 6F-squared DRAM architecture still has “a lot of runway,” while future 4F-squared and 3D DRAM transitions should increase materials engineering intensity in areas aligned with Applied’s portfolio.
Dao also discussed Applied’s EPIC Platform, saying it is intended to shorten what has historically been a 10-year development pipeline by bringing customers, suppliers, universities and industry partners into the same facility. He said Broadcom was announced as a participant that morning, with a specific interest in advanced packaging.
Services Business Benefits From Output Focus
Dao said Applied Global Services, which Sur described as representing about 20% to 22% of company revenue, is benefiting from customers’ focus on output. Dao said roughly two-thirds of AGS revenue comes from long-term contracts, with renewal rates above 90% across the portfolio and higher renewal rates in managed and performance services.
The AGS business grew 17% year over year in the first half of Applied’s fiscal year, according to Sur. Dao said the company raised its longer-term services growth outlook to sustainable annual growth in the mid-teens range. He pointed to three drivers:
- Growth in long-term service contracts, particularly managed and performance services.
- On-demand spare parts and labor, which are tied more closely to factory utilization.
- Applied’s software franchise, including manufacturing execution systems and smart factory software.
Dao said Applied’s AIx platform, which stands for Actionable Insight eXcelerator, helps bring AI, predictive models, digital twins and recipe optimization into customer fabs. He said these tools are being used to move maintenance from corrective to preventive and predictive, helping customers schedule downtime more efficiently and keep tools centered within narrow process windows.
Margins and Efficiency
Sur noted that AGS gross margins improved 30 basis points sequentially and 120 basis points year over year in the April quarter, while operating margins rose 100 basis points to 29%, the highest level in more than two years.
Dao said top-line growth in AGS is driven by value creation for customers, while margin improvement is driven by operational efficiency. He said Applied has automated its three continental distribution centers with robotics, including stocking, de-stocking and packing, with about 60% of that process now automated.
Asked about Applied’s systems margins, Dao said the company’s advanced products, including IMS tools, create high value for customers by solving complex manufacturing problems. He said Applied released five advanced new products over the prior three months, including Trillium, and said the continued evolution of the technology roadmap should be beneficial for Applied’s gross margins over time.
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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