Key Highlights

  • Fiscal Q3 Revenue rose 25% to a record $9.12 billion; the CEO called it the highest sequential revenue growth in company history.
  • Non-GAAP EPS rose 41% to $3.50, and non-GAAP Operating Margin widened to 34.0% from 30.7%.
  • Q4 guidance is $10.25 billion, plus or minus $500 million, in revenue and $4.02, plus or minus $0.20, in non-GAAP EPS; China made up 28% of revenue.
  • Despite the beat and strong guidance, shares fell about 5% in after-hours trading, and Applied Materials remains the largest supplier of semiconductor Manufacturing equipment by revenue.

Applied Materials (NASDAQ:AMAT) posted the strongest quarter-over-quarter revenue growth in its history in its fiscal third quarter, as chipmakers raced to add capacity for AI processors and high-bandwidth memory. In its August 13 Earnings release, the company reported record revenue of $9.12 billion for the quarter ended in late July, up 25% from $7.30 billion a year earlier.

"Applied Materials delivered another record-breaking quarter, including the highest sequential revenue growth in the company's history," Chief Executive Gary Dickerson said in the release. Revenue grew about 15% from the prior quarter. Non-GAAP Earnings Per Share rose 41% to a record $3.50, and GAAP EPS climbed 43% to $3.17.

The surge came from spending on leading-edge logic chips, DRAM including high-bandwidth memory, and advanced packaging, all of which are central to AI Data Center hardware. Management also guided to another step up in the fiscal fourth quarter, forecasting revenue of about $10.25 billion.

Inside the Record Quarter

The growth was broad and profitable. GAAP gross margin rose to 50.3% from 48.8% a year earlier, and the non-GAAP gross margin was 50.4%. Chief Financial Officer Brice Hill said the company achieved its 13th consecutive quarter of year-over-year gross margin expansion. Non-GAAP operating margin widened to 34.0% from 30.7%, and GAAP operating margin was 33.7%.

Applied generated $3.04 billion in Operating Cash Flow during the quarter and returned $860 million to shareholders, split between $440 million in share repurchases and $420 million in dividends.

Results also beat expectations, with analysts having expected revenue of about $8.99 billion and EPS of $3.40.

Why the Sequential Jump Was So Large

Several technology shifts landed at the same time. Chipmakers are moving leading-edge logic to gate-all-around transistors, which require new deposition, etch and materials-engineering steps. Memory makers are expanding DRAM and HBM capacity to feed AI accelerators, and advanced packaging, which stacks and connects chips, has become a bottleneck for AI hardware. Each of these areas uses more of the specialized equipment Applied sells, and the combined Demand pushed shipments sharply higher in a single quarter.

Segment Performance and Customer Mix

Semiconductor Systems, which sells the equipment used to make chips, generated $7.04 billion in revenue. Its non-GAAP operating margin rose to 38.0% from 33.2% a year earlier. Within the segment, foundry and logic customers accounted for 67% of revenue, DRAM for 26% and flash memory for 7%. On the earnings call, management said DRAM revenue, which includes HBM packaging, grew 52% year on year to record levels.

Applied Global Services, which provides spare parts, upgrades and service for the company's large installed base of tools, contributed $1.78 billion. Display and other revenue totaled $294 million. The services Business tends to grow steadily as more tools are installed and run at high utilization, giving Applied a Recurring Revenue stream that is less exposed to swings in new equipment orders.

By geography, China was the largest market at 28% of revenue, or about $2.51 billion. Taiwan contributed 22%, Korea 17%, the United States 15% and Japan 9%, with Europe and Southeast Asia making up the rest.

Guidance Points to Another Step Up

For the fiscal fourth quarter, Applied guided to revenue of $10.25 billion, plus or minus $500 million, and non-GAAP EPS of $4.02, plus or minus $0.20. At the midpoint, that would mark another record quarter and a sequential increase of more than $1 billion.

Management also raised its outlook for the year, now expecting its semiconductor systems business to grow more than 30% in calendar 2026, up from its earlier forecast of more than 20%. It said it expects packaging revenue to grow more than 70% in calendar 2026, and it expects 2027 to be another record year. Management also said leading-edge logic will be among the fastest-growing areas.

Despite the beat and strong guidance, the shares fell about 5% in after-hours trading following the report. No single reason for the decline was clearly identifiable, but the reaction suggested that much of the good news was already reflected in the share price. Investors often focus on the next leg of guidance and on signs of margin pressure when a stock has run up ahead of results.

How Applied Stacks Up Against Rivals

Applied Materials is the largest supplier of semiconductor manufacturing equipment by revenue, with a broad portfolio spanning deposition, etch, ion implantation, inspection and packaging. It competes with Lam Research (NASDAQ:LRCX), Tokyo Electron, KLA (NASDAQ:KLAC) and ASML (NASDAQ:ASML) across different parts of the chipmaking process.

The broader equipment sector is benefiting from the same trend. Lam Research, for example, reported record June-quarter revenue and guided higher for its September quarter. Applied's advantage lies in its breadth: it can sell solutions that combine several process steps, which becomes more valuable as chip designs shift to gate-all-around transistors, backside power delivery and advanced 3D packaging. The company's services business also offers recurring revenue that helps cushion downturns.

Risks to the Growth Story

China remains the most prominent risk. At 28% of revenue, sales there are exposed to changes in U.S. export controls, and management's own commentary suggests China spending is still growing. Any tightening of restrictions could quickly affect results.

Customer concentration is another concern. A small number of foundry and memory makers account for a large share of wafer fabrication equipment spending, and their Capital budgets can change quickly. Management flagged margin pressure from hiring and capacity expansion, as well as dependence on customers' cleanroom availability. More broadly, the current surge is tied to AI infrastructure spending, and any slowdown in data center Investment would ripple through to equipment orders. NAND flash spending is also expected to grow more slowly than leading-edge segments.

Applied Materials' Next Checkpoint: Fiscal Q4

Applied's next major catalyst is its fiscal fourth-quarter report, which the company has typically released in mid-November. Investors will focus on whether revenue reaches the $10.25 billion guidance midpoint, whether gross margin continues to expand and what management says about calendar 2027.

Updates on U.S. export rules, spending plans from major foundry and memory customers, and results from peers such as Lam Research in October will also shape expectations for the equipment cycle.