Applied Materials (AMAT) just reported fiscal first-quarter results that handily beat estimates and offered strong guidance, underscoring the company’s pivotal role in the semiconductor ecosystem. With the stock jumping more than 12% in after-hours trading, it signals robust investor confidence in chipmakers amid surging AI-driven demand.
This performance highlights how memory-focused companies are capitalizing on a steep shortage of high-bandwidth memory (HBM) and DRAM, essential for AI training and inference. As data centers expand rapidly, these shortages are creating profitable opportunities for investors, positioning memory stocks as the next frontier in the AI boom beyond logic chips.
Strong Results Highlight AI Momentum
Applied Materials delivered impressive fourth-quarter fiscal 2026 results, with revenue reaching $7.01 billion, slightly above expectations despite a 2% year-over-year decline. Non-GAAP earnings per share came in at $2.38, beating estimates of $2.21 and remaining flat compared to the prior year. The company’s gross margin expanded to 49.1% on a non-GAAP basis, up 20 basis points year-over-year, reflecting efficient operations and a favorable product mix tilted toward high-value AI-related equipment.
Key segments shone brightly, particularly in semiconductor systems, which benefited from demand for DRAM and advanced packaging tools. CEO Gary Dickerson emphasized during the earnings call that DRAM is expected to be the fastest-growing segment in 2026, driven by AI infrastructure needs.
The company’s guidance was even more compelling, projecting second-quarter revenue of about $7.65 billion, well above the $7.01 billion consensus, with non-GAAP EPS around $2.64. Looking further ahead, Applied anticipates over 20% growth in its semiconductor equipment business in the second half of 2026 and into 2027, fueled by AI expansions and memory capacity builds.
The Memory Shortage and Industry Winners
The global memory chip shortage, exacerbated by explosive AI demand, is a core driver of Applied’s outlook. Data centers are projected to consume up to 70% of memory chips produced in 2026, leading to supply shortfalls that could persist through 2027. High-bandwidth memory like HBM, crucial for AI accelerators, is in particularly tight supply, with prices surging 50% to 55% in recent quarters as manufacturers prioritize AI over consumer electronics. This pivot has restricted availability for standard DRAM and NAND, pushing up costs for smartphones, PCs, and other devices.
Companies like Micron (MU), Samsung, and SK Hynix are capitalizing massively. These three dominate over 90% of the memory market and have sold out their 2026 HBM capacity, locking in premium pricing. SK Hynix has secured deals with Nvidia (NVDA) at 50% higher prices for next-gen HBM4, while Samsung anticipates a 422% jump in memory division profits. Micron reported record Q1 2026 revenue of $13.64 billion, with gross margins hitting 56%, as it shifts production toward AI-focused products.
Applied Materials fits into this void as a key supplier of equipment for advanced memory fabrication, including tools for 3D chiplet stacking and DRAM production, enabling these firms to ramp up capacity amid the crunch.
Bottom Line
Despite Applied Materials’ stock rising 28% year-to-date and 82% over the past year, it still trades at reasonable valuations, with a forward P/E around 39x amid projected earnings growth. The memory shortage and AI tailwinds suggest more upside, as the company’s exposure to DRAM and HBM positions it for sustained demand.
Investors eyeing the next AI wave should consider AMAT and peers like MU, with room to run as shortages drive profitability higher.
— Rich Duprey
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Source: Money Morning
