Applied Materials Q2 Earnings Call Highlights

Key Points

• Applied Materials posted record fiscal Q2 revenue of $7.91 billion and record non-GAAP EPS of $2.86, with management citing the company’s highest gross margin in more than 25 years.
• Executives said AI infrastructure demand is driving stronger semiconductor equipment spending, and Applied now expects its semiconductor equipment business to grow more than 30% this calendar year. They also pointed to expanding customer plans into 2027 and 2028.
• The company issued upbeat Q3 guidance, including revenue of about $8.95 billion and non-GAAP EPS of $3.36, while highlighting strength in foundry, DRAM, services, and advanced packaging as key growth areas.

Applied Materials NASDAQ: AMAT reported record fiscal second-quarter revenue and earnings, with executives saying accelerating demand for artificial intelligence infrastructure is reshaping semiconductor equipment spending toward areas where the company holds leading positions.

President and CEO Gary Dickerson said Applied delivered “record revenue and earnings” in the quarter, along with its “highest gross margin in more than 25 years.” He said the company sees “an exceptionally strong foundation for sustained multi-year revenue and profit growth” as customers build out AI computing infrastructure and increase spending in leading-edge foundry logic, DRAM and advanced packaging.

Chief Financial Officer Brice Hill said the company’s second-quarter revenue rose 13% sequentially and 11% year over year to a record $7.91 billion. Non-GAAP earnings per share reached a record $2.86, up 20% from the prior year. Non-GAAP gross margin was 50%, up 80 basis points year over year, while non-GAAP operating margin expanded 140 basis points to 32.1%.

AI Demand Drives Higher Equipment Outlook

Dickerson said global AI adoption has continued to accelerate, with demand broadening beyond generative AI into agentic AI applications. He said agentic AI models require more CPU-intensive computing architectures and increase demand for DRAM and NAND, creating an additional tailwind for wafer fab equipment.

Applied now expects its semiconductor equipment business to grow more than 30% this calendar year. Dickerson said customers are finding ways to reallocate or create clean room space, leading to incremental requests for equipment deliveries in 2026. Hill added that the demand outlook has strengthened across “almost every leading indicator” the company tracks, including cloud service provider capital spending, fab utilization and new fab project announcements.

Hill said Applied is tracking more than 100 factory projects globally and added more than 10 projects in the latest quarter. He said the company expects 2027 to be another record year for the industry, while Dickerson said customer conversations increasingly extend into 2027 and 2028 due to rising compute demand.

Segment Results Reflect Strength in Foundry, DRAM and Services

Semiconductor Systems generated record revenue of $5.97 billion, up 16% sequentially and 10% year over year. Hill said the transition to gate-all-around nodes and capacity additions at leading-edge FinFET nodes drove record foundry revenue, as well as record revenue across atomic layer deposition, epitaxy and materials treatments.

DRAM revenue was $1.7 billion, up 18% year over year. Dickerson said Applied is the No. 1 process equipment provider in memory and expects to gain additional DRAM share at upcoming transistor and device architecture inflections. He cited the company’s positions in DRAM wiring, patterning, peripheral logic, conductor etch and E-beam technologies.

Applied Global Services also delivered record revenue, rising 17% year over year to $1.67 billion. Hill said the business benefited from higher fab utilizations, an expanding installed base and customer adoption of advanced services designed to improve output and yield. He raised the medium-term growth outlook for AGS to the mid-teens, with growth potentially higher this year.

Other revenue totaled $280 million, in line with company expectations. China represented 24% of combined Semiconductor Systems and AGS revenue, and Hill said Applied expects its China business and its ICAPS business worldwide to be flat to slightly higher for the calendar year.

Guidance Points to Further Growth

For the fiscal third quarter, Hill guided for company revenue of $8.95 billion, plus or minus $500 million, representing nearly 23% year-over-year growth. The company expects non-GAAP EPS of $3.36, plus or minus $0.20, up nearly 36% year over year.

The outlook includes Semiconductor Systems revenue of about $6.9 billion, AGS revenue of about $1.75 billion and other revenue of roughly $300 million. Applied expects non-GAAP gross margin of approximately 50.1%, non-GAAP operating expenses of about $1.485 billion and a non-GAAP tax rate near 11%.

Hill said non-GAAP gross margin has increased 800 basis points since Dickerson became CEO in 2013 and is now approaching 55% in Semiconductor Systems. He attributed the improvement to value-based pricing for differentiated products and manufacturing cost innovations.

New Products and Packaging Expansion

Dickerson highlighted new products aimed at gate-all-around semiconductor manufacturing, including the Trillium ALD integrated materials solution and the Precision PECVD system. He said Trillium ALD gives chipmakers angstrom-level control in complex gate stacks, while Precision PECVD uses selective bottom-up deposition to protect shallow trench isolation structures and improve device performance.

In advanced packaging, Dickerson said Applied expects packaging revenue to grow more than 50% in calendar 2026. The company recently announced its intent to acquire NEXX, which Dickerson said would strengthen Applied’s panel-level technology portfolio for larger body packages used in AI accelerators. During the question-and-answer session, he said the acquisition fits into Applied’s broader strategy in large-area packaging electroplating and advanced package architecture innovation.

EPIC Center and Customer Visibility

Applied executives repeatedly emphasized longer-range customer planning. Hill said large customers are providing rolling eight-quarter forecasts, helping Applied and its suppliers plan capacity and resources. He said the company has nearly doubled manufacturing capacity through expansions in the U.S. and Europe and a new manufacturing center in Singapore.

Dickerson also discussed Applied’s EPIC Platform, a collaboration model intended to speed technology commercialization from research to high-volume manufacturing. The company’s new EPIC Center in Silicon Valley remains on track to begin operations in the fall. Applied has announced TSMC, Micron, Samsung and SK hynix as founding partners, along with university partnerships with ASU, RPI and Stanford and a development partner agreement with Advantest.

Dickerson said EPIC gives Applied greater multi-node visibility, helps guide R&D investments and supports design wins for equipment and services. He said the center will co-locate customer, partner and Applied innovators to accelerate development of technologies needed for AI-related computing architectures.

In closing remarks, Hill said Applied’s prior investments have positioned the company to benefit as AI drives incremental demand across the semiconductor industry, adding that the company is focused on growing revenue, expanding margins and increasing operating leverage.

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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