Applied Materials (AMAT) heads into fiscal second-quarter earnings Thursday evening as one of the most important companies in the entire artificial intelligence infrastructure buildout. While investors often focus on names such as Nvidia (NVDA), Taiwan Semiconductor Manufacturing Company (TSM), or Micron Technology (MU), Applied Materials sits deeper in the semiconductor supply chain, providing many of the critical manufacturing tools required to actually build advanced AI chips, high-bandwidth memory (HBM), and next-generation packaging technologies. The company has become one of Wall Street’s favorite AI infrastructure plays this year, with shares rallying roughly 65%-70% year-to-date and recently pushing toward all-time highs as investors increasingly believe the AI-driven semiconductor capital expenditure cycle may last several years.
Applied Materials manufactures deposition, etching, process control, packaging, and materials engineering equipment used by virtually every major advanced chipmaker globally. Its customer base includes leading foundries and memory producers such as Taiwan Semiconductor Manufacturing Company, Micron Technology, Samsung Electronics, and Intel. As hyperscalers race to build AI infrastructure, those chipmakers are dramatically increasing spending on advanced logic, DRAM, HBM memory, and advanced packaging capacity — all areas where Applied Materials has particularly strong exposure.
Wall Street expects Applied Materials to report fiscal Q2 adjusted earnings of approximately $2.68 per share on revenue of roughly $7.69 billion. That would represent year-over-year earnings growth of about 8% to 12% depending on the comparison methodology, while revenue is expected to rise between 5% and 8.5% from the prior-year period. Analysts are also expecting Semiconductor Systems revenue — the company’s largest business — to reach approximately $5.8 billion.
The setup heading into the report is particularly bullish because semiconductor equipment peers have largely delivered strong results and optimistic commentary throughout earnings season. RBC, Stifel, Citi, Wolfe, HSBC, and Cantor Fitzgerald all reiterated bullish ratings ahead of the print while raising price targets into the $500-$540 range. Analysts broadly expect another “beat-and-raise” quarter as AI-driven wafer fabrication equipment (WFE) demand continues accelerating.
RBC expects Applied Materials to deliver revenue and non-GAAP EPS of roughly $7.7 billion and $2.64 respectively, slightly ahead of consensus. More importantly, the firm expects fiscal Q3 guidance to come in 5%-10% above current Wall Street estimates of $8.1 billion in revenue and $2.89 EPS. Stifel similarly expects Applied to exceed both consensus and internal expectations while remaining on track for greater than 20% semiconductor systems growth during calendar 2026.
The central issue investors will focus on is whether AI-related spending remains strong enough to offset weakness in China and concerns about broader cyclical semiconductor demand.
Right now, virtually every major analyst believes the answer is yes.
Applied Materials has become one of the primary beneficiaries of the AI memory and advanced packaging boom. Demand tied to HBM memory, advanced DRAM nodes, gate-all-around logic architectures, and advanced packaging remains exceptionally strong. Analysts expect those trends to continue accelerating into 2027 and potentially beyond as hyperscalers continue spending aggressively on AI infrastructure.
One of the most important metrics investors will monitor is management’s commentary around WFE spending. Applied typically does not provide explicit industry WFE forecasts, but management previously stated it expected semiconductor equipment business growth greater than 20% during calendar 2026. Many analysts now believe that figure may need to move closer toward 25% given the strength in DRAM, HBM, and advanced foundry demand. Citi recently lifted its 2027 WFE bull-case forecast to $190 billion, reflecting expectations for sustained hyperscaler AI infrastructure spending.
HBM and DRAM trends remain particularly important. Applied has major exposure to advanced DRAM and HBM manufacturing, which has become one of the hottest areas of semiconductor spending globally as AI accelerators require increasingly large memory configurations. Wolfe Research expects Applied’s DRAM-related revenue to climb roughly 34% during calendar 2027 alone, while HSBC projects DRAM WFE spending could surge 50%-60% across 2026 and 2027.
Advanced packaging is another major focus area. As AI chips become more complex, semiconductor companies increasingly rely on advanced packaging technologies to improve bandwidth, power efficiency, and compute density. Applied Materials has aggressively expanded its positioning in packaging equipment and continues highlighting advanced packaging as one of its highest-growth businesses. Management previously stated advanced packaging WFE spending is increasing substantially and should remain one of the company’s strongest growth drivers.
Gross margins will also receive heavy scrutiny.
In fiscal Q1, Applied Materials reported non-GAAP gross margins of 49.1%, which came in 70 basis points above the midpoint of guidance and improved 20 basis points year-over-year. Management guided fiscal Q2 gross margins toward roughly 49.3%, and investors will want to see whether margins continue expanding despite inflationary pressures and supply-chain constraints. Stronger margins would reinforce the idea that Applied is benefiting from a richer mix of leading-edge AI-related tools and increasingly complex semiconductor manufacturing processes.
China exposure remains one of the key overhangs.
Applied Materials continues facing export restrictions tied to advanced semiconductor equipment shipments into China, while domestic Chinese competitors are increasingly becoming more competitive at the lower end of the market. Management previously stated China revenue declined 7% year-over-year and represented roughly 27% of semiconductor equipment and AGS sales. The company has also guided for Chinese sales growth to remain roughly flat this year. Investors will therefore be watching carefully for any commentary surrounding the Trump-Xi summit, export controls, and geopolitical developments.
Still, most investors currently appear willing to look through the China weakness because AI demand from Taiwan, South Korea, and the United States remains extraordinarily strong.
Applied Materials’ Applied Global Services (AGS) business will also be important to watch. AGS generated record revenue of $1.56 billion last quarter, rising 15% year-over-year. Analysts like the recurring and higher-margin nature of the services business because it helps smooth out some of the cyclicality traditionally associated with semiconductor equipment spending.
The stock’s price action itself highlights how dramatically investor sentiment has shifted. Shares have surged more than 60% this year, significantly outperforming both the broader S&P 500 and many semiconductor peers. The rally has also driven valuation expansion, with Applied now trading around 27x forward earnings versus roughly 23x earlier in the year. Even after the sharp move, many analysts still argue the valuation remains attractive because earnings growth expectations for 2026 and 2027 continue moving materially higher.
Options markets are pricing in a major move following the report. Current options pricing implies approximately a 7%-8% post-earnings move, suggesting shares could trade toward roughly $455 on the upside or fall back toward the high $390s if the report disappoints. Investors are clearly expecting elevated volatility given how aggressively the stock has already rallied ahead of earnings.
Ultimately, the broader thesis around Applied Materials is increasingly straightforward: the company sits directly at the center of the AI semiconductor arms race. As long as hyperscalers continue spending aggressively on AI infrastructure, advanced chips, HBM memory, and advanced packaging, Applied Materials should remain one of the primary beneficiaries. The biggest question heading into earnings is not whether demand remains strong — it almost certainly does — but whether expectations have now become too high after one of the stock’s strongest rallies in years.