Applied Materials drops 5% as investors seek faster growth after AI run

Applied Materials shares slid 4.9% to $508.30 in premarket trading Friday after fiscal third-quarter earnings beat estimates but left investors wanting more.

"This was another record quarter for Applied, including the strongest sequential revenue growth in the company's history," CEO Gary Dickerson said.

Adjusted EPS of $3.50 topped the $3.40 consensus, up from $2.48 a year earlier. Revenue climbed 25% to $9.12 billion, above the $9 billion estimate. GAAP EPS of $3.17 missed, weighed by a $220 million unrealized loss on investments.

The stock remains up 108% year-to-date after a 30% July plunge. Q4 guidance of $10.25 billion revenue and $4.02 adjusted EPS both substantially exceed Wall Street forecasts of $9.55 billion and $3.71.

Metric	Actual	Consensus	Beat/Miss
Revenue	$9.12B	$9.00B	+1.3%
Adjusted EPS	$3.50	$3.40	+$0.10
Non-GAAP Op Income	$3.10B	$3.03B	+2.3%

Semiconductor Systems revenue rose 27% to $7.04 billion, with DRAM equipment climbing to 26% of segment revenue from 22% a year earlier. Non-GAAP operating income jumped 45% to $2.67 billion, expanding margins from 33.2% to 38.0%.

The company raised its 2026 advanced packaging growth outlook to more than 70%, up from a prior forecast of over 50%, and lifted semiconductor systems revenue growth to above 30% from more than 20%. Applied Materials also introduced six new systems targeting DRAM and advanced packaging, including technology for 12-layer and 16-layer HBM designs.

China remained the largest market at 28% of total sales, down from 35% a year earlier, while Taiwan accounted for 22%, Korea 17%, and the US 15%. US revenue doubled to $1.37 billion, and European revenue more than tripled to $483 million.

The company generated a record $3.04 billion in operating cash flow and returned $860 million to shareholders through $440 million in buybacks and $420 million in dividends. Applied Materials reported alongside peers KLA Corp. and Lam Research, which also delivered strong quarterly results as AI-driven memory capacity expansions accelerate globally.

The guidance raise shows management expects AI-driven equipment demand to accelerate into 2027, with Dickerson citing stronger customer visibility. Investors will watch whether competitive pressure from rivals and margin constraints temper the stock's 108% year-to-date gain in coming quarters.

This article is for informational purposes only and does not constitute investment advice.