Key Stats for Applied Materials Stock
- Current Price: $507.18
- Target Price (Mid): ~$714
- Street Target: ~$634
- Potential Total Return: ~34%
- Annualized IRR: ~7% / year
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What Happened?
Applied Materials (AMAT) just delivered the strongest quarter in its history, and the stock fell more than 5% for it. On August 13, the company reported record fiscal Q3 2026 revenue of $9.115 billion, up 25% year over year and 15% sequentially, the highest quarter-on-quarter revenue growth it has ever posted. Non-GAAP earnings per share hit a record $3.50, beating the $3.39 Street estimate. Management then raised its outlook and guided Q4 revenue to $10.25 billion, up 51% year over year. Shares closed the next session at $507.18, down 5.12%.
After a roughly 108% run in 2026, AMAT walked into the print priced for perfection, and two specific things gave profit-takers their reason: China revenue kept shrinking as a share of the mix, and the margin guide stayed flat despite a 51% revenue ramp. The record quarter was real, and so was the market’s discomfort with what it is paying for it.
The Beat Was Never the Problem. The Bar Was.
Revenue beat the $9.0 billion consensus by roughly $110 million. Non-GAAP operating margin expanded to a record 34%, up 330 basis points year over year, and free cash flow came in at $2.3 billion. The company returned $860 million to shareholders through $420 million in dividends and $440 million in buybacks, with $12.8 billion left on the authorization. It was the 13th consecutive quarter of year-over-year gross margin expansion.
AMAT touched a 52-week high of $739.67 in late June, then fell to an intraday low near $436 on July 29 during a sharp semiconductor pullback, a 39.63% peak-to-trough drawdown, before clawing back above $500 into the report. Entering earnings up roughly 108% on the year and rebounding hard off that low, the setup left almost no room for anything short of a blowout, and traders took the record print as a chance to sell the news.
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China Keeps Shrinking, and the Market Fixed On It
On the call, CFO Brice Hill put China at 26% of Semiconductor Systems plus AGS revenue this quarter. Measured against total company sales, press coverage tracked China falling to roughly 28% from about 35% a year earlier. The bases differ, but the direction does not: China is a shrinking share of the mix, and it shrinks against a backdrop of US export restrictions on advanced chipmaking tools.
CFO Brice Hill said the company now expects China revenue to grow this calendar year and next, led by 28-nanometer foundry-logic, where Applied holds strong differentiation. The tension is that growing in absolute dollars while shrinking as a share of the mix is exactly the nuance a market in profit-taking mode ignores. The number that flashed on screens was the falling China share, and that is what moved the stock.
CEO Gary Dickerson sold shares throughout the year, including a June sale disclosed via SEC Form 4, though the discretionary sales were a single-digit percentage of his holdings and he retained roughly 1.6 million shares. It is a footnote rather than a thesis, but it fed the profit-taking mood into the print.
The Margin Guide Said Flat, and Investors Heard “Priced In”
The second pressure point was the Q4 gross margin guide of approximately 50.4%, flat sequentially, even as revenue is set to grow 51% year over year. On a quarter with that much operating leverage, a flat margin reads as a disappointment to anyone underwriting continued expansion.
Hill gave a plain reason: “we’re ramping a lot of customer service engineers,” pointing to the more than 1,500 people added this quarter as Applied builds toward doubling its quarterly systems output by 2028. That is spending ahead of revenue, not pricing power breaking down. Semiconductor Systems gross margin still sits above 55%, and value-based pricing keeps lifting margins over time. Underneath the two worries sits the real reason to own the stock: visibility. Applied’s largest customers now have it rolling eight-quarter forecasts, with some technology conversations extending to 2030. CEO Gary Dickerson, in many of those conversations, directly described “a gap between supply and demand” in which DRAM memory demand “continues to go higher” as AI expands from training to inference. That gap underwrites another record year in 2027, and on TIKR’s peer comparison, the premium is defensible: AMAT trades around 25.8x NTM EV/EBITDA, below equipment peers Lam Research, near 29.9x, and KLA near 31.5x.
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TIKR Advanced Model Analysis
- Current Price: $507.18
- Target Price (Mid): ~$714
- Potential Total Return: ~34%
- Annualized IRR: ~7% / year
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The model was set at a $534.54 entry, and shares now trade lower at $507.18, which modestly improves the return math versus the model’s own figure. Two revenue drivers carry the target:
- Leading-edge foundry-logic and DRAM, where Applied is the number-one process equipment provider in DRAM and HBM-related packaging is growing fast.
- Advanced packaging, where management now expects overall packaging revenue to grow more than 70% in calendar 2026.
The margin driver is value-based pricing on a richer product mix, which lifted Semiconductor Systems gross margin above 55%. The primary risk is China: a step-down in licenses or faster erosion of the mix would pressure revenue and the multiple at once. The upside is that AI-driven equipment demand compounds with eight-quarter visibility, carrying results above the mid-case path. The downside is that a cyclical equipment maker at a quality premium re-rates lower if China worsens or AI capex cools, and at this multiple, there is little cushion for either.=
Conclusion
The next real test is the Q4 print in mid-November, which closes fiscal 2026. Watch two lines. Gross margin needs to land at or above the guided 50.4% to confirm the flat guide was ramp cost and not pricing erosion, and any lift toward 51% would signal operating leverage reasserting. On China, watch whether the mix stabilizes or keeps sliding; management promised absolute-dollar growth there this year, and Q4 is the first checkpoint on that claim. A margin hold plus a steady China share would make the August selloff look like profit-taking. A second flat-margin guide or another leg down in China would suggest the market was right to flinch. Management lays out its longer-term framework first, at the October 13 investor breakfast at SEMICON West, which may reset the narrative before the print.
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Should You Invest in Applied Materials?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
