Applied Materials reports a robust third quarter, driven by AI-related demand in wafer fabrication, with revenue up 25% and new growth forecasts amid ongoing global build-outs and technological collaborations.
Applied Materials reported a stronger-than-expected third quarter, with revenue rising 25% year on year to $9.12 billion and non-GAAP earnings per share climbing 41% to $3.50 as demand linked to AI infrastructure continued to drive orders, according to its earnings call transcript published by The Motley Fool. Chief executive Gary Dickerson said the company was benefiting from a rapid global build-out of AI data centres and from customers’ efforts to add clean-room capacity and accelerate tool deliveries. The company also lifted its fourth-quarter outlook, guiding to revenue of $10.25 billion, plus or minus $500 million, and non-GAAP earnings per share of $4.02, plus or minus $0.20.
The semiconductor systems division remained the main growth engine, with revenue of $7.04 billion, up 27% from a year earlier, while Applied Global Services posted $1.78 billion, up 22%. Non-GAAP gross margin widened to 50.4%, the thirteenth consecutive quarter of year-on-year expansion, and operating margin reached a record 34%. The company also generated record operating cash flow of $3.04 billion and returned $860 million to shareholders through dividends and buybacks. Management said it still had $12.8 billion left under its repurchase authorisation and plans to return 80% to 100% of free cash flow to shareholders.
AI-linked demand was particularly strong in leading-edge logic, DRAM and advanced packaging, which management said will account for about 80% of wafer fab equipment growth through 2027. Applied said DRAM revenue rose 52% year on year and that advanced packaging revenue should grow by more than 70% in calendar 2026. Dickerson also highlighted the company’s EPIC collaboration programme, saying it now has 11 announced partnerships, including Broadcom, and is intended to speed the commercialisation of new materials engineering and packaging technologies.
The near-term outlook is not without frictions. Chief financial officer Brice Hill said the tax rate is expected to rise to about 13% in 2027 as the global minimum tax takes effect, and he noted ramp-up costs linked to hiring more than 1,500 staff in manufacturing and customer support during the quarter. He also said the company is planning to double quarterly system output by 2028, while acknowledging that clean-room space remains a constraint for customers even as they find new ways to work around it. For now, Applied is leaning on deeper customer visibility, longer-term forecasts and a stronger mix of AI-related work to support growth into 2027.
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