Shares of Applied Materials (NASDAQ:AMAT | AMAT Price Prediction) are down 5.7% in premarket trading Friday after the company posted record fiscal Q3 results but guided fourth quarter revenue and margins that failed to clear an elevated bar. The stock closed Thursday near $535, already up roughly 109% year to date and roughly 183% over one year.
Strong Report, Expectations Problem
The results were a beat. Applied reported record revenue of $9.1 billion, up 15% sequentially and 25% year over year, alongside record non-GAAP EPS of $3.50, up 41% year over year, as detailed in the company’s 8-K filing with the SEC. Semiconductor Systems hit a record $7.0 billion, up 27%, with segment operating profit of $2.7 billion up 45%. DRAM revenue including HBM packaging rose 52% to a record.
Guidance was strong too, with fourth quarter revenue set at $10.25 billion plus or minus $500 million, up 51% year over year, and EPS of $4.02 plus or minus $0.20, up 85%.
The problem is positioning. The stock fell roughly 10% over the past month through July, but has ripped roughly 22% higher since July 29 straight into the earnings report. That sharp two-week run, layered on top of a triple-digit annual gain, left little cushion for anything less than a blowout. Buyside expectations were very elevated heading into the relese.
Analysts flagged the fine print. Morgan Stanley said the revenue guidance implies slower systems shipment growth. UBS analyst Timothy Okere noted the guide implies sequential deceleration, stepping down from 18% growth in July. Gross margin was guided roughly flat near 50.4% despite the revenue step-up, with CFO Brice Hill citing ramp costs after the company added more than 1,500 people in the quarter.
Peers Are Not Following
The read-through into the group is muted. Lam Research (NASDAQ:LRCX) is down 0.9% premarket and KLA (NASDAQ:KLAC) is flat. Lam is up roughly 34% since its own July 29 earnings report, when it posted revenue of $6.72 billion, up 15% sequentially and 30% year over year, its highest quarterly gross margin in 20 years at 52%, and a September quarter guide of $8.1 billion plus or minus $400 million.
Crucially, Lam CEO Tim Archer told investors, “We expect calendar 2026 wafer fab equipment spending, or WFE, to be in the low $150 billion range, up from our prior outlook of $140 billion with upside bias.” That is an industry-level bullish datapoint. It reinforces Applied’s own view that leading-edge foundry logic, DRAM and advanced packaging will drive around 80% of wafer fab equipment growth in 2026 and 2027. There are whispers on Wall Street that WFE could cross $300 billion as soon as 2030.
KLA overlaps less with Applied because its portfolio is weighted toward process control, metrology and inspection rather than deposition and etch. That is largely why it is flat. One item to watch: Applied said its process diagnostics and control business will grow more than 50% in calendar 2026 and is “introducing new optical inspection products which enable us to increase application share in these markets.” That is a potential encroachment theme over time.
Capacity as Optionality
Applied said it is building “the capacity to double our quarterly system output from current levels by 2028.” When asked if that implies doubled 2028 revenue, Hill was direct: “It is more nuanced. I think you should take it explicitly. It’s capacity. So it’s not a revenue forecast for 2028.” Treat it as optionality and a signal to Applied’s supply chain.
What to Watch
The tell today is whether Lam and KLA hold their ground into the close. If they do, this reads as an Applied-specific expectations reset after a big two-week run into earnings. Keep an eye on whether AMAT stabilizes above $534 and how analysts land on price targets after the call.
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