Applied Materials raises 2026 outlook as DRAM and packaging tools surge
· TexaHub · Semiconductors, Technology Trends
Applied Materials posted record quarterly revenue and lifted its 2026 equipment growth outlook, while China's share of sales fell and investors questioned margin guidance.
A record quarter
Applied Materials reported revenue of $9.115 billion for its fiscal third quarter, which ended on 26 July 2026, up 25% from a year earlier [1]. The prior-year quarter had brought in $7,302 million [1]. The company's SEC filing of the same release confirms the headline revenue figure of $9.12 billion [2]. GAAP earnings per share were $3.17, up 43%, and non-GAAP earnings per share were $3.50, up 41% [1]. Chief executive Gary Dickerson said the company had delivered "the highest sequential revenue growth in the company's history" [1].
The figures came in ahead of market expectations: consensus had stood at $8.99 billion in revenue and $3.40 in non-GAAP earnings per share, according to Investing.com's account of the results call [3]. Operating cash flow was $3.037 billion and non-GAAP free cash flow $2.330 billion [1].
For the fiscal fourth quarter, Applied guided to revenue of $10.250 billion, plus or minus $500 million, and non-GAAP earnings per share of $4.02, plus or minus $0.20 [1]. If delivered, that would be a further step up from a quarter the company already describes as a record, which makes the guidance the more consequential number of the release.
Where the growth is coming from
The Semiconductor Systems segment, which sells wafer fabrication tools, generated $7.040 billion of revenue with a non-GAAP operating margin of 38.0% [1]. That was up 27% year over year and 18% sequentially, while Applied Global Services, the service and parts business, rose 22% to $1.781 billion [4].
Management told analysts that leading-edge foundry logic, DRAM and advanced packaging together represent "around 80% of wafer fab equipment growth in 2026 and 2027" [3]. It said DRAM revenue, which includes HBM packaging, grew 52% year over year to record levels [3]. Chief financial officer Brice Hill said the company expects "continued strong revenue growth in the second half of the calendar year, particularly in DRAM as well as leading-edge foundry-logic and advanced packaging" [1].
The company raised its calendar 2026 outlook for Semiconductor Systems growth to more than 30%, from more than 20% previously [3]. It also forecast growth of more than 70% in advanced packaging revenue and more than 50% in process diagnostics and control [4]. Dickerson said that, based on customer demand visibility, Applied expects "another strong growth year" in 2027 [1].
The read-across from the wider supply chain is consistent with that picture. KLA, the process-control specialist, reported June-quarter revenue of $3.658 billion on 28 July and guided to $3.8 billion to $4.2 billion for the following quarter, with chief executive Rick Wallace saying momentum was accelerating [5]. TrendForce's foundry bulletin of 17 August said second-quarter foundry revenue "rose broadly", citing advanced-node strength at Samsung, including progress on 2nm technology tied to its Taylor platform, and AI-driven demand at SMIC [6].
China's share is shrinking
China accounted for $2.506 billion, or 28%, of total revenue in the quarter, compared with 35% in the same quarter a year earlier [2]. Taiwan contributed 22%, Korea 17% and the United States 15% [1]. On the call, management put China at 26% of combined Semiconductor Systems and services revenue, a different base from the company-wide figure, and said it still expects China revenue to grow this year, driven by 28-nanometre foundry logic investment [3].
The shift matters less because Chinese spending is falling than because spending elsewhere is rising faster. On the company's own breakdown, the three categories driving growth are concentrated at leading-edge logic and memory makers outside mainland China, so China's share can decline even while its absolute spending holds up. That is our reading of the segment mix rather than a figure the company has disclosed.
Why the shares fell
Despite the beat, the stock fell in after-hours trading. Investing.com's call summary reported a 5.24% drop to $506.51 [3], while its separate slides summary reported a 4.94% decline to $508.15 [4]; the difference likely reflects when each snapshot was taken. The slides summary attributed the reaction to flat gross margin guidance for the fourth quarter and near-term margin pressure from capacity expansion [4].
Hill pointed to the company's 13th consecutive quarter of year-over-year gross margin expansion, and said Applied is "making additional manufacturing capacity investments to support projected demand through the end of the decade" [1]. Non-GAAP gross margin for the quarter was 50.4% [1]. The tension for investors is that these capacity investments are a bet on demand several years out, while the margin benefit of higher volumes may take time to show.
What to watch
The key question for the next two quarters is whether DRAM and advanced packaging orders hold at current rates once the present wave of HBM and AI accelerator capacity additions is installed. Applied's own guidance assumes they do, and its 2027 comments are framed as customer visibility rather than firm orders [1]. A second question is China: the company expects growth there this year [3], but its share of total revenue was 28% in the latest quarter against 35% a year earlier [2]. Whether that decline continues will depend on how quickly mature-node Chinese fabs keep adding capacity relative to leading-edge customers in Taiwan, Korea and the United States. For now, the results suggest equipment demand tied to AI chips remains strong, with the main debate shifting from volume to margins.
Sources
[1] Applied Materials Announces Third Quarter 2026 Results — Applied Materials via GlobeNewswire, 13 Aug 2026
[2] Applied Materials Form 8-K, Exhibit 99.1: Third Quarter Fiscal 2026 Earnings Release — U.S. SEC EDGAR, 13 Aug 2026
[3] Earnings call transcript: Applied Materials beats Q3 2026 estimates, shares fall — Investing.com, 13 Aug 2026
[4] Applied Materials Q3 FY2026 slides: record results, raised outlook — Investing.com, 13 Aug 2026
[5] KLA Corporation Reports Fiscal 2026 Fourth Quarter and Full Year Results — KLA, 28 Jul 2026
[6] Foundry Market Bulletin - Aug. 17, 2026 — TrendForce, 17 Aug 2026