Applied Materials Gains As AI Demand Reaches The Fab

Applied Materials’ fiscal second-quarter report showed that the AI boom is not stopping at the data center door. The company reported record revenue of $7.91 billion, up 11% from a year earlier, while non-GAAP earnings rose 20% to a record $2.86 per share. Shares remained higher in premarket trading Friday, though the gain had narrowed from Thursday’s initial post-earnings pop. The reaction showed Wall Street still liked the bigger message — AI spending is turning into real demand for the tools that make advanced chips possible.

The strongest signal came from the business closest to the chipmaking arms race. Semiconductor Systems revenue rose to $5.97 billion, with operating margin improving to 35.1% from 32.8% a year earlier. That segment gives Applied a central role in the factories making the next wave of chips, supplying the tools chipmakers need for leading-edge logic, DRAM, advanced packaging, and other manufacturing steps behind AI processors. The company also now expects its semiconductor equipment business to grow above 30% in calendar 2026, up from its prior expectation for growth above 20%.

Applied did not just post a record quarter — it pointed to another strong one ahead. The company guided fiscal third-quarter revenue to about $8.95 billion, plus or minus $500 million, with non-GAAP earnings of $3.36 per share, plus or minus $0.20. Applied Global Services added another layer of durability, with revenue rising to $1.67 billion and operating income climbing to $487 million from $378 million a year earlier. Chip factories do not simply buy equipment and walk away. They need service, upgrades, support, and productivity improvements across years of production.

The caveat is cash flow. Applied generated $845 million in operating cash flow and $210 million in non-GAAP free cash flow, down sharply from last year, while management said the company had increased build plans, inventory positions, and logistics capacity to support customer demand. That makes the cash-flow hit worth watching, even if it came from Applied preparing for stronger demand. Investors often focus on the chips, but the equipment needed to make those chips is becoming a major part of the trade — AI demand has to become manufacturing capacity before it becomes the next generation of hardware. For now, Applied is investing ahead of the AI manufacturing cycle, and investors seem to like that direction. The next test is whether the same supply-chain readiness helping it capture demand can turn the chip factory boom into stronger cash generation.

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