AI Chip Expansion Continues as Applied Materials’ First-Quarter Revenue Outlook Beats Expectations!

Applied Materials released its fourth-quarter and full-year fiscal 2026 results after the market closed on Thursday. Fourth-quarter revenue reached $10.41 billion, up approximately 53% year over year and above market expectations of around $10.3 billion. Adjusted earnings per share rose approximately 92% to $4.16, exceeding the $4.06 forecast. Driven by expanding AI chip production capacity, revenue from its core Semiconductor Systems business reached $8 billion in the fourth quarter, up 64% year over year.

The company forecast first-quarter fiscal 2027 revenue above Wall Street expectations, betting that strong demand for advanced AI chips will continue to drive spending on semiconductor manufacturing equipment. The CEO said fiscal 2026 delivered record results, with the Semiconductor Systems business on track to grow more than 40% over calendar 2026 as AI continues to generate additional semiconductor demand.

For the full year, revenue rose 21% to a record $34.45 billion. GAAP earnings per share reached $12.62, while non-GAAP earnings per share increased 37% to $12.89, both setting records. Operating cash flow totaled $8.87 billion. The company returned $4.75 billion to shareholders, comprising $3.18 billion in share repurchases and $1.57 billion in dividends.

For the first quarter of fiscal 2027, Applied Materials expects revenue of approximately $11.1 billion, plus or minus $500 million, above analysts’ average estimate of around $10.89 billion. Adjusted earnings per share are projected at approximately $4.35, plus or minus $0.20, also exceeding expectations. The company expects robust demand for advanced AI chips to continue driving investment in semiconductor manufacturing equipment. Its shares rose approximately 3% in after-hours trading.

In late October, the CEO outlined plans to double the company’s revenue over the next few years without a proportional increase in headcount, primarily by using AI tools to improve research and development and quality control efficiency. The company is also bringing its $5 billion EPIC research and development center in Silicon Valley into operation to accelerate next-generation chip development. However, expanded US export restrictions on China had previously led the company to project a revenue loss of approximately $600 million for fiscal 2026. The Chinese market remains its biggest source of policy uncertainty.

On demand, management said capacity for leading-edge logic chips and DRAM remains tight. Demand for advanced packaging also remains very strong, particularly in high-bandwidth memory and hybrid bonding.

Market Insight:

Applied Materials’ equipment covers approximately 80% of the process steps involved in hybrid bonding, and the company remains optimistic about demand for new packaging architectures. Applied Materials has also increased its dividend for nine consecutive years, with a current dividend yield of 0.54%, reflecting management’s confidence in its ability to continue generating cash.