Applied Materials boosts its outlook as AI chipmakers scramble to add more production capacity

Chipmaking equipment giant Applied Materials Inc. is expecting stronger sales this year compared with what it originally forecast, thanks to surging demand for artificial intelligence chips.

The company offered bullish guidance for the current quarter after delivering earnings and revenue in its latest quarter that exceeded Wall Street’s expectations.

Adjusted earnings for the second quarter were $2.86, above the Street’s consensus estimate of $2.68 and up from $2.39 per share in the year-ago period. Revenue for the quarter came to $7.9 billion, up 11% from a year ago and above the $7.7 billion projection by analysts. The improved results helped Applied to strengthen its bottom line, with net income for the quarter rising to $2.806 billion, up from $2.137 billion in the year-ago quarter.

The company followed up with solid guidance for the current quarter. While Wall Street had been forecasting Applied to energize its growth in the fourth quarter, officials said they expect its fortunes to improve much sooner than that. It forecast earnings of $3.36 per share, up 35% from a year earlier and well ahead of the Street’s target of $3.21 per share. It’s also looking at sales of $8.95 billion in the quarter, above the analyst consensus estimate of $8.72 billion.

President and Chief Executive Gary Dickerson (pictured) hailed the company’s latest quarterly performance, and said he’s expecting the semiconductor equipment business to grow by more than 30% this year. “The rapid global buildout of AI computing infrastructure combined with Applied’s strong leadership positions in leading-edge logic, DRAM and advanced packaging provide an exceptionally strong foundation for sustained, multiyear revenue and profit growth,” he said.

Applied’s stock initially gained almost 3% in late trading, only to lose momentum and settle back down. However, the company’s shares are still up more than 71% in the year to date, and 152% in the last 12 months.

The company’s cutting-edge semiconductor manufacturing equipment has proven to be essential to the industry’s efforts to build out its high-end chip production capacity. It makes various machines that enable different semiconductor manufacturing processes, and even caters to the most advanced chips for AI, which require fine-tuning that few other manufacturers can provide.

Applied’s equipment is involved in a number of crucial chip manufacturing steps used to transform blank silicon wafers into highly efficient processors. Its customers include the world’s leading chip manufacturer, Taiwan Semiconductor Manufacturing Co., and the memory chip specialist Micron Technology Inc.

When the AI boom began, chipmakers initially resisted the temptation to commit significant capital to enhance their capacity, because they were wary of the boom-bust cycle that followed the Covid-19 pandemic. However, Applied’s customers have woken up to the realization that’s unlikely to happen anytime soon with AI. They’re now racing to increase their high-end chip production capacity to cater to the industry’s unquenchable thirst for AI compute.

Dickerson told analysts on a conference call that global AI adoption continues to accelerate, with demand given added impetus thanks to growing adoption of autonomous AI agents that can perform work without human supervision. He said agentic AI workloads require more central processing unit-intensive computing architectures and also increase demand for dynamic random-access memory and NAND chips, creating an additional tailwind for the company.

Senior Vice President and Chief Financial Officer Brice Hill said the company is tracking more than 100 factory projects across the world, and added 10 projects in the previous quarter. He believes fiscal 2027 will be another record year for the semiconductor industry, with customer conversations increasingly extending into 2028.

During the quarter, Applied’s semiconductor systems business generated record sales of $5.97 billion, up 16% sequentially and 10% from the prior year. According to Hill, the industry’s transition to gate-all-around nodes helped drive those gains.

Meanwhile, the company’s DRAM segment racked up sales of $1.7 billion, up 18% from a year ago. According to Dickerson, Applied is now the world’s number one process equipment supplier for memory chips, and he added he’s confident it will be able to strengthen that position going forward.

The company’s global services unit added $1.67 billion in sales, up 17% from a year ago. That’s thanks to higher fab utilization, an expanding installed base and customer adoption of advanced services that can help them increase production output and yield.

Photo: Applied Materials