Applied Materials (NASDAQ:AMAT) reported fiscal first-quarter 2026 results that came in above the midpoint of its guidance range, with management repeatedly pointing to accelerating artificial intelligence-related demand as the central driver of its outlook. CEO Gary Dickerson said the company’s “strong performance and outlook for 2026 and beyond are fueled by the acceleration of investments in AI computing,” while CFO Brice Hill said utilization is rising “across all device types,” with leading-edge foundry logic and DRAM capacity “essentially full” and pricing higher.
AI-driven demand reshapes the company’s growth outlook
Dickerson said AI is at a “tipping point” where performance improvements and cost reductions are enabling real-world productivity gains, prompting “unprecedented spending on semiconductors, semiconductor manufacturing capacity, and research and development.” He added that the most critical and fastest-growing semiconductor markets are leading-edge logic, high-bandwidth memory (HBM) DRAM, and advanced packaging—areas where Applied Materials believes it holds strong leadership positions.
First-quarter financial results and segment performance
Hill said Applied generated Q1 revenue of $7.0 billion, which was “in the upper end” of the company’s guidance range and down 2% year over year. Non-GAAP EPS was $2.38, “at the top of the guidance range” and flat year over year. Non-GAAP gross margin was 49.1%, up 20 basis points year over year and 70 basis points above the midpoint of expectations.
By segment, Hill highlighted record DRAM revenue within Semiconductor Systems and record revenue for Applied Global Services (AGS):
- Semiconductor Systems: Revenue of $5.14 billion, down 8% year over year. Non-GAAP gross margin rose 100 basis points to “more than 54%,” which Hill attributed to value-based pricing and manufacturing cost improvements. Non-GAAP operating margin was 32.9%.
- Applied Global Services (AGS): Record revenue of $1.56 billion, up 15% year over year. Hill said non-GAAP gross margin increased 210 basis points and non-GAAP operating margin rose 320 basis points.
Hill also said China revenue declined 7% year over year and represented 27% of combined semiconductor equipment and AGS sales, and 30% of overall company sales.
On the balance sheet, Applied generated $1.69 billion in cash from operations and $1.0 billion in free cash flow, which reflected elevated capital investments tied to building the EPIC R&D center in Silicon Valley and expanding manufacturing capacity. The company returned $702 million to shareholders through dividends and buybacks during the quarter, and Hill said it distributed “over 85% of free cash flow” to shareholders over the past year.
Export controls compliance matter accrual
Hill noted that GAAP results included an accrual of $252.5 million related to an export controls compliance matter previously disclosed in Applied’s 2022 10-K and subsequent filings. Hill said the Department of Justice and the SEC closed their inquiries with “no enforcement actions,” and the company reached a settlement with the U.S. Department of Commerce, Bureau of Industry and Security.
Market commentary: leading-edge logic, HBM DRAM, and packaging
Dickerson said Applied’s customers are adding capacity at FinFET nodes while ramping Gate-All-Around (GAA) nodes, and he called Applied the “clear number one process equipment provider in leading-edge logic.” He said GAA expands the company’s available market and provides “a catalyst for multiple points of market share gain.”
In memory, Dickerson said AI is driving significant demand for HBM, which he said has larger die sizes and requires “3–4 times more wafer starts per delivered bit than standard DRAM.” He also said the number of dies in HBM stacks is increasing from 12 to 16 and then “20 or more,” which he described as an additional demand driver for both wafer starts and advanced packaging.
Advanced packaging was another focal point. Dickerson said the fastest-growing packaging segments in 2026 are expected to be HBM and 3D chiplet stacking, and he said Applied holds strong share in both. Meanwhile, he forecast “modest growth” for NAND equipment demand in 2026, with NAND expected to remain below 10% of wafer fab equipment spending. For ICAPS (markets such as IoT, communications, automotive, power, and sensors), management said wafer fab equipment spending is expected to be approximately flat year over year, both globally and in China.
Product pipeline, EPIC, and services growth
Dickerson said Applied’s “inflection-focused innovation” strategy is producing a pipeline of next-generation products and contributing to growth in 2026. He cited cold field emission (CFE) E-beam technology as one of the company’s fastest-growing businesses, with Applied expecting CFE E-beam revenue to double in calendar 2026 to “more than $1 billion.”
Applied also highlighted plans to launch “more than a dozen” new products in 2026, including systems for advanced logic and DRAM that were announced earlier in the week. Dickerson also discussed a first EPIC co-development agreement with Samsung Electronics and described EPIC as a platform intended to speed co-innovation and improve Applied’s R&D productivity and visibility.
In services, Dickerson said demand for advanced services is accelerating as customers ramp complex devices, supporting “double-digit growth” for the services business. He said the company has more than 30,000 chambers connected to its AIX servers, and that across these connected tools Applied is seeing “30% faster response times.” Hill added that AGS is largely recurring, with two-thirds under contract, an average contract length of 2.9 years, and a 90% renewal rate.
For fiscal Q2, Hill guided revenue of $7.65 billion ± $500 million and non-GAAP EPS of $2.64 ± $0.20. The company expects Semiconductor Systems revenue of about $5.8 billion, AGS revenue of about $1.6 billion, and other revenue of roughly $250 million, with non-GAAP gross margin around 49.3%.
About Applied Materials (NASDAQ:AMAT)
Applied Materials, Inc is a U.S.-based supplier of equipment, services and software used to manufacture semiconductor chips, flat panel displays and other advanced materials. Headquartered in Santa Clara, California, the company designs and sells capital equipment and related technologies that enable production of integrated circuits, display panels and materials used across the electronics supply chain.
Applied Materials’ offerings include process equipment and factory software that support critical steps in device fabrication, such as deposition, etch, implantation, inspection and metrology, as well as systems for packaging and advanced heterogeneous integration.
