Applied Materials Says AI Boom Is Driving Semiconductor Equipment Demand Higher

Key Points

• AI investment is lifting semiconductor equipment demand: Applied Materials said customer spending forecasts have risen, with cloud providers’ capital expenditures expected to exceed $700 billion in the U.S. and approach $1 trillion globally.
• Advanced packaging and DRAM are key growth areas: Applied expects advanced-packaging revenue to grow more than 70% this year, while DRAM enters a significant greenfield expansion cycle driven by AI-related capacity needs.
• Services and process-control demand are accelerating: The company expects services revenue to grow more than 20% this year and process diagnostics and control to increase more than 50%, supported by higher chip complexity and AI-enabled tools.

Applied Materials NASDAQ: AMAT sees continued strength in semiconductor equipment demand as artificial intelligence-related investment drives customer forecasts higher, Chief Financial Officer Brice Hill said at Citi’s 2026 Global TMT Conference.

Hill said the company’s rolling eight-quarter forecasts from its largest customers, particularly DRAM and leading-edge logic manufacturers, have increased throughout the year. He attributed the trend to demand for AI systems and pointed to rising capital-expenditure forecasts from cloud service providers, which he said exceed $700 billion for U.S. companies and approach $1 trillion globally.

“Really all the indicators, all the arrows point up,” Hill said. “Our customers are investing, our customers’ customers are investing and highly profitable, and we’re investing.”

AI Systems Drive Demand Across Logic, Memory and Packaging

Applied Materials is monitoring the design of AI systems, including GPU, accelerator, CPU and memory content, to assess future demand by device category. The company is also tracking more than 100 fab projects globally, with more than 10 added during each of the past two quarters, Hill said.

He said clean-room availability remains an important constraint on industry capacity growth over the medium term. Applied is evaluating the timing of new fabs and the capacity they will add, while using customer forecasts to plan for demand.

Hill identified advanced packaging as a major growth area alongside leading-edge logic and DRAM. Applied’s advanced-packaging business generated $1.4 billion in revenue last year, and the company expects it to grow by more than 70% this year. He said advanced packaging should continue growing in line with leading-edge logic and DRAM as AI systems require high-performance interconnects among processors, accelerators and high-bandwidth-memory stacks.

The company is also investing in panel-level packaging, which uses larger substrates to support more chips and higher-quality interconnects in computing systems. Hill said the industry remains in the development stage, with Applied generating revenue from panel-processing equipment but no volume production yet underway. The company recently acquired NEX, which provides fine-line interconnect capabilities for panel-level packaging.

ICAPS Recovery, NAND Remains Upgrade-Driven

Hill said Applied expects moderate growth in its ICAPS business in 2026. ICAPS encompasses IoT, communications, automotive, power and sensor markets and had been weak for the previous several years as China added significant capacity.

Utilization rates are now improving, Hill said, and Applied expects a more normal growth year for ICAPS next year. He characterized normal growth in the underlying device markets as mid- to high-single digits, with equipment demand eventually tracking that growth as utilization normalizes.

NAND bit demand remains strong, in the “high 20% range,” according to Hill. However, he said that gains in layer counts have made NAND manufacturing more productive, allowing producers to add bit capacity with fewer wafers. As a result, NAND remains more dependent on equipment upgrades than greenfield fab construction, keeping the market smaller than the DRAM opportunity.

By contrast, Hill said DRAM capacity is entering a more significant greenfield investment cycle. He estimated that the industry had about 1.6 million DRAM wafer starts per month a year ago and is adding roughly 400,000 wafer starts per month this year. He expects additions of 300,000 to 400,000 wafer starts per month over the next several years.

Hill said an upgrade fab requires roughly 25% of the equipment investment of a greenfield facility. He estimated that process equipment for 100,000 wafer starts of greenfield capacity could total about $10 billion, illustrating the larger equipment opportunity associated with new DRAM fabs.

Capacity, Services and Process Control

Applied has invested to support the ability to produce twice its current quarterly system output by 2028, Hill said, emphasizing that the target is a capacity statement rather than a revenue forecast. The company sends aggregated eight-quarter demand outlooks to suppliers by component type to help them plan hiring and capacity investments.

Hill said Applied’s services business is growing more than 20% this year, aided by high utilization across leading-edge logic, DRAM, ICAPS and NAND. Customers are purchasing more spare parts and components to maintain output, he said. The company’s longer-term services outlook is for mid-teens growth, supported by an installed base that is expanding by roughly 5% to 7% annually and higher revenue per tool from new offerings.

Those offerings increasingly include AI-based services that use tool sensors and operating data to help customers improve yield and output, Hill said.

Applied also expects its process diagnostics and control business to grow more than 50%. Hill said demand is being driven by more complex semiconductor architectures, including gate-all-around transistors, which require electron-beam inspection to identify buried defects that cannot be seen through optical inspection methods.

On profitability, Hill said Applied’s approximately 300-basis-point gross-margin improvement over the past three years has reflected the greater value of its product solutions and improved pricing processes. The company applies value-based pricing to both new and existing products, he said, while also accounting for higher costs for labor, materials and components.

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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