Research Finder
Find by Keyword
Is Applied Materials Ready for AI's Next Wave Despite China Headwinds?
AI infrastructure boom promises growth acceleration in H2 2026, but trade restrictions and market mix challenges persist
By the Numbers:
Annual revenue: $28.37 billion (+4% YoY)
Non-GAAP EPS: $9.42 (+9% YoY)
Q4 revenue: $6.80 billion (-3% YoY)
Non-GAAP gross margin: 48.8% (25-year high)
China exposure: 25% of Q4 2025 revenue (down from 45% peak Q1 2024)
Key Highlights:
Applied Materials achieved its sixth consecutive year of growth despite trade restrictions reducing China market access by over 20%
The company launched three breakthrough products architected to enable 2nm and beyond technology nodes critical for AI computing
Management signals accelerating demand starting H2 2026, with customers providing unprecedented 1-2 year visibility into capacity requirements
Display revenue surged 68% YoY in Q4 and DRAM revenues from the company’s leading-edge customers has grown over 50% in the past four quarters
The News
Applied Materials reported Q4 2025 earnings exceeding the midpoint guidance - thus completing a record fiscal year with revenues of $28.37 billion. The semiconductor manufacturing equipment giant announced strategic organizational changes that signal Applied’s readiness for significant demand acceleration beginning in the second half of calendar 2026. Management continues to highlight AI compute as the primary reason behind the record year and anticipated future growth, driving investment in advanced semiconductors manufactured by the company’s wafer fab equipment. Read the full earnings release
Analyst Take
Applied Materials finishes a record-breaking year in a unique position. They delivered respectable growth in a challenging year from geopolitical and regulatory uncertainty, so while they succeeded in 2025, the real story lies in what's coming in 2026.
The company’s fiscal 2025 results show navigation against significant headwinds, while positioning for a next wave of AI-driven surge. The semiconductor equipment market is on track to reach $125.5 billion in 2025 and projected to expand up to as much as $139 billion by 2026. Applied's strategic positioning is central in this landscape - a position the company has been in for decades.
Over the last two years, repeated shifts in trade restrictions emerged as the dominant narrative for all companies in this space. Applied saw its accessible market in China shrink dramatically - with a roughly 10% impact in fiscal 2024 that more than doubled into 2025. China's contribution to revenue declined from a peak of 45% in January of 2024 to just 25% in this quarter. That is no temporary blip - its a new reality for the company that isn’t going away. Management expects China wafer fab equipment spending to decline further in 2026 with no anticipated relief from trade restrictions.
Yet beneath this challenge lies remarkable resilience. Applied grew revenue 4% despite losing significant market access, suggesting strong execution in accessible markets. The company's DRAM business particularly stands out - revenues from leading-edge customers surged over 50% in the past four quarters even as overall DRAM spending remained flat.
What Was Announced
Three product launches showcase Applied's technology leadership aimed at capturing the AI opportunity:
The Xtera epitaxy system represents a breakthrough for gate-all-around transistors at 2nm and beyond. The system integrates epitaxy, cleaning, and etching capabilities, delivering 40% improvement in uniformity and 50% lower gas usage. It creates void-free source-drain structures designed to provide the higher transistor speeds essential for AI computing.
Kinex, the industry's first integrated die-to-wafer bonder, aims to transform advanced packaging. This 6-step integrated system with on-board metrology enables higher-accuracy bonding and smaller interconnect pitches - critical capabilities as the industry shifts toward heterogeneous integration and chiplet architectures.
PROVision 10 extends Applied's leadership in eBeam metrology with cold-field emission technology. The system delivers 50% better image resolution and 10x faster imaging speed, capabilities architected to address the complexity of 3D device structures where defects can hide in buried layers.
The memory market dynamics are projected to continue their runup in the next few quarters. DRAM equipment sales saw robust growth of 40.2% to $19.5 billion in 2024, followed by projections for continued expansion in 2025 and 2026, while NAND equipment sales are expected to surge 42.5% to $13.7 billion in 2025. Applied's strong position in DRAM gives them upside from the ongoing expansion.
The reorganization announcements signal operational maturity. Moving the 200mm equipment business to Semiconductor Systems and fully allocating corporate costs creates cleaner segment reporting. AGS becomes purely recurring revenue. Smart moves for a company preparing to scale.
Customer engagement tells the most compelling story. Management describes "deep, multi-year co-innovation engagements" with unprecedented visibility - some customers providing two years of demand forecasts. This isn't typical in the notoriously cyclical semiconductor industry. It suggests structural change driven by AI's computational demands.
The financial metrics support optimism. Gross margins hit 48.8%, the highest in 25 years. The company generated nearly $8 billion in cash from operations while investing $2.3 billion in the new EPIC Center. The balance sheet can support aggressive growth investment.
While the news is largely good for the company, the headwinds havent gone away. As part of streamlining their organization model, Applied will shed ~1,400 jobs, about 4% of the workforce. Operating expenses will remain elevated in such a capital and R&D heavy industry. The first half of 2026 looks soft before the promised acceleration. Competition intensifies, particularly from domestic Chinese players in CVD, CMP, and etch segments - partially organic, and also very much driven by export controls requiring an acceleration of Chinese competitive efforts.
Looking Ahead
Based on what I'm observing, Applied Materials stands at the threshold of potentially its most significant growth phase, but execution risk remains high. The key trend I'll be tracking is whether that H2 2026 AI-driven demand materializes as strongly as management predicts.
The convergence of AI datacenter buildout, advanced packaging adoption, and technology node transitions blend into a positive throughline for Applied. The total semiconductor market for data centers is projected to continue growing through 2030. Applied's process-tool-of-record positions across logic, DRAM, and packaging should capture disproportionate value.
Going forward, I'll be monitoring how effectively Applied navigates the China exposure reduction while capitalizing on strength in Taiwan and Korea. The company's ability to maintain gross margins above 48% as volumes ramp will indicate pricing power durability.
When you look at the market as a whole, Applied's inflection-focused innovation strategy appears well-aligned with where semiconductor technology must evolve. The shift from lithography-heavy investment in 2025 to process equipment in 2026 plays directly to Applied's strengths. My perspective is that these strategic moves following a record-breaking year will adroitly position the company if management's visibility into 2026-2027 demand proves accurate.
Stephen Sopko | Analyst-in-Residence – Semiconductors & Deep Tech
Stephen Sopko is an Analyst-in-Residence specializing in semiconductors and the deep technologies powering today’s innovation ecosystem. With decades of executive experience spanning Fortune 100, government, and startups, he provides actionable insights by connecting market trends and cutting-edge technologies to business outcomes.
Stephen’s expertise in analyzing the entire buyer’s journey, from technology acquisition to implementation, was refined during his tenure as co-founder and COO of Palisade Compliance, where he helped Fortune 500 clients optimize technology investments. His ability to identify opportunities at the intersection of semiconductors, emerging technologies, and enterprise needs makes him a sought-after advisor to stakeholders navigating complex decisions.