I keep hitting the buy button on Applied Materials (NASDAQ:AMAT | AMAT Price Prediction) because one truth about the AI build-out has become impossible to ignore: NVIDIA (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), and custom ASIC designers cannot ship a single next-gen AI chip without advanced wafer fab packaging, and Applied sells the etch, deposition, and CMP tools that make Through-Silicon Vias and Chip-on-Wafer-on-Substrate stacking possible in the first place.
That is the core of my conviction. Everyone talks GPUs. I own the toll booth behind the GPUs. CEO Gary Dickerson framed it plainly on the last call: “The rapid global build-out of AI computing infrastructure” is driving Applied’s positions in leading-edge foundry logic, DRAM, and advanced packaging, and the company now expects its semiconductor equipment business to grow more than 30% this calendar year. Packaging revenue alone is guided to grow more than 50% in calendar 2026.
The Receipts Behind the Buy
Q2 FY2026 delivered record revenue of $7.91 billion, non-GAAP EPS of $2.86, and a non-GAAP gross margin of 50%, the highest in more than 25 years. Applied Global Services, the recurring high-margin base I care most about for a retirement account, ran at $1.67 billion in the quarter, with more than 35,000 chambers connected to Applied’s proprietary AIx software.
Then there is the shareholder return story. The board raised the quarterly dividend 15% in March, extending a nine-consecutive-year streak of increases, with FY2025 buybacks of $4.895 billion against $5.698 billion in free cash flow. Analyst consensus sits at 32 Buy or Strong Buy ratings versus 7 Hold and zero Sell, with a target of $629.09.
Why Not Lam Research?
I respect Lam Research (NASDAQ:LRCX). It is putting up 30% YoY revenue growth and a 37.4% operating margin. My money still lands on AMAT because forward valuations are nearly identical, with Applied at a forward P/E of 32 versus Lam at 32, while Applied’s quarterly dividend of $0.53 runs double Lam’s $0.26. AMAT trades at a price-to-book of 17 versus Lam’s 29, and Applied’s services segment at that scale is a recurring cash engine Lam does not match at the same volume.
The Risk I Am Taking Seriously
China is the real one. It was 27% of Q2 FY26 revenue, or $2.087 billion, down from 35% a year earlier, and Applied paid a $253 million settlement with the U.S. Commerce Department’s BIS in Q1 FY2026 tied to export controls. The mix keeps shrinking as leading-edge logic and HBM demand in Taiwan, Korea, and the U.S. takes a larger share of the pie, which is exactly the direction the moat needs to travel.
Why the Buy Button Stays Active
Dickerson said a customer he met with was “worried about the supply all the way into 2030”. That is the demand curve I am underwriting. Ahead of the August 13 report guided to $8.95 billion in revenue and $3.36 in EPS, with prediction markets pricing a 92.5% chance of a beat, I keep adding because Applied sells the tools that decide whether the next decade of AI hardware ships at all.
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