Key Takeaways

  • Net revenue of $7.01B (-2% y/y) at the high end of the $6.85B ±$400M guide; non-GAAP EPS of $2.38 vs. $2.21 consensus (+8%).
  • Non-GAAP gross margin of 49.1% — highest in 25 years — driven by mix, pricing discipline and AGS growth.
  • Semiconductor Systems revenue $5.14B with record DRAM contribution (34% of segment, up from 25% in Q1 FY25) supporting HBM build-outs.
  • Applied Global Services hit a record $1.56B (+1.5% y/y) at 28.1% non-GAAP operating margin — recurring base now ~22% of total revenue.
  • Q2 FY26 guide: revenue $7.65B ±$500M (+9% q/q at mid), non-GAAP EPS $2.64 ±$0.20, gross margin ~49.3% — would be a record quarter.
  • China revenue 27% of combined Semi+AGS (down from 36% peak); $252.5M export-control compliance accrual partially offsets margin tailwind.
  • Capital return: $702M in Q1 ($337M buybacks + $365M dividends); 15% dividend hike to $0.53/qtr and new $10B repurchase authorization in March 2026.
  • BUY-rated PT raised to $450 (from $400) — 41x raised CY27E non-GAAP EPS of $11.00, in line with semicap peer multiples and AMAT’s 5-yr mean.

Snapshot

MetricActualConsensus / PriorVariance
Net Revenue$7.01B$6.88B (cons) / $6.85B (guide)+1.9% BEAT
Non-GAAP Diluted EPS$2.38$2.21+7.7% BEAT
GAAP Diluted EPS$2.54—+75% y/y
Non-GAAP Gross Margin49.1%48.5%+60 bps BEAT (highest in 25 yrs)
GAAP Operating Income$1.83B (26.1%)—Above plan
Cash from Operations$1.69B—FCF $1.04B
Capital Return$702M—$337M buyback + $365M div
Q2 FY26 Revenue Guide$7.65B ±$500M$7.40B Street+3.4% above mid
Q2 FY26 Non-GAAP EPS Guide$2.64 ±$0.20$2.50 Street+5.6% above
Q2 FY26 Gross Margin Guide~49.3%48.7% Street+60 bps above
Implied FY26 Revenue~$31.5B (+11% y/y)—Above-trend semi, record AGS
WFE Market Growth CY26>20% y/y—Leading-edge logic, HBM, advanced packaging

Detail

Applied Materials’ Q1 FY26 print was fundamentally about mix and durability rather than headline growth. Total revenue of $7.01B was down 2% year-over-year on a tough Q1 FY25 compare ($7.17B), but came in at the high end of the $6.85B ±$400M guide and roughly $130M above consensus. The more important story was the quality of the gross margin: at 49.1% non-GAAP — the highest the company has reported in 25 years — Applied is now operating well above its multi-year 47% structural average, reflecting the cumulative impact of pricing actions, mix toward more value-added 200mm and gate-all-around tools, and a structurally higher AGS contribution. Non-GAAP EPS of $2.38 was flat year-over-year despite the modest revenue decline — gross-margin expansion fully absorbed the topline pressure and a slightly higher tax rate.

Semiconductor Systems revenue of $5.14B was down 4% year-over-year but mix-rich: foundry/logic/other contributed 62% (down from 70% in Q1 FY25), while DRAM jumped to 34% (up from 25%) on Samsung and SK hynix capacity additions for HBM3e and HBM4. NAND remained subdued at just 4% of the segment. Management called Q1 a record quarter for DRAM equipment revenue and pointed to continued HBM-driven incremental investment through CY27. Applied Global Services delivered a record $1.56B (+1.5% y/y) at 28.1% non-GAAP operating margin — the recurring services and spares base is now structurally over $6B annualized and provides important earnings stability across the WFE cycle. Display revenue, included in ‘Other,’ was $312M, supported by IT-OLED tool shipments to Korean panel makers.

Geographic concentration shifted meaningfully in Q1 FY26. China declined to 27% of combined Semiconductor Systems + AGS revenue (from a 36% peak in CY24 and 29% in Q1 FY25) as the cumulative effect of expanded U.S. export controls reduced advanced-node tool eligibility for Chinese memory and logic customers. The shortfall has been more than absorbed by accelerating demand from Korea (21% of revenue, up from 17%) and a steady contribution from Taiwan (16%) and the U.S. (14%, supported by Intel and Micron domestic capacity ramps). Importantly, AMAT recorded a $252.5M accrual related to an export-controls compliance matter — a one-time GAAP item that we expect to remain non-recurring but will continue to monitor through subsequent disclosures.

Three things have changed structurally with this print. First, gross-margin durability is now evident: with Q1 at 49.1% and Q2 guided to 49.3%, AMAT is operating at a structural premium to the 47% multi-year average and we now model FY26 GM at 49.5% (vs. 48.5% prior). Second, the DRAM mix step-up to 34% of Semiconductor Systems (from 25% a year ago) confirms that HBM is no longer a tactical add-on — it is becoming a primary capacity driver and meaningfully elevates AMAT’s exposure to AI inference economics. Third, management’s explicit guidance that WFE will exceed 20% growth in CY26 puts a quantitative anchor under the second-half setup; we lift FY26 revenue to $31.5B and FY27 to $34.0B, with FY27E non-GAAP EPS of $11.00 (vs. $9.60 prior).

AMAT returned $702M to shareholders in Q1 FY26 ($365M dividends + $337M buybacks), a notable step-down from the $1.4–1.9B quarterly pace observed throughout FY25. Management explicitly attributed the moderation to (i) blackout windows around the export-controls accrual and (ii) timing of the new $10B repurchase authorization, which the Board approved in March 2026. We model buybacks accelerating back to a $1.2–1.5B quarterly pace by Q3 FY26. The 15% dividend raise to $0.53/share (effective June 11, 2026) is a credible signal of management confidence in the FCF trajectory.

We raise our 12-month price target to $450 (from $400), based on 41x our revised CY27E non-GAAP EPS of $11.00. Our target multiple sits at AMAT’s 5-year forward-PE average, which we view as appropriate given (i) durable mid-teens FCF growth, (ii) ~85–90% of FCF returned to shareholders, and (iii) AMAT’s structural exposure to AI-driven WFE growth. Our DCF cross-check (8.5% WACC, 3% terminal growth, ~30% steady-state operating margin) yields an intrinsic fair value of $462, supporting our multiples-based target. Our bull case of $540 assumes WFE compounds at 18% through CY27 with sustained 50% gross margins, while the bear case of $310 reflects a deeper China cut and 2027 logic capex digestion.

Risks

  • Export-control escalation — further U.S. restrictions on advanced 200mm or memory tools to China could compress mix below 20% and trigger additional one-time accruals.
  • WFE cyclicality — semicap is historically a cyclical industry; a hyperscaler capex pause in late CY26 could compress 2027 wafer-add intentions across foundry and memory.
  • Memory volatility — DRAM is now 34% of Semi Systems segment; an HBM pricing/oversupply event would reverse the mix tailwind and pressure 2H26 gross margin.
  • Customer concentration — TSMC, Samsung and SK hynix together represent the bulk of leading-edge orders; any single customer pause is material.
  • Competitive intensity — Lam Research and Tokyo Electron compete directly in etch/deposition; ASML occupies the litho monopoly. Share shifts at advanced nodes warrant ongoing scrutiny.
  • Tariff / FX — additional tariffs or USD strength reduce reported earnings translation and could pressure customer capex budgets internationally.

Catalysts (Next 90 Days)

  • Q2 FY26 earnings release — May 14, 2026; key watch items are revenue versus the $7.65B midpoint, gross-margin sustainability and the magnitude of buyback re-acceleration.
  • Investor Day — historically held in spring; potential update on long-term financial model and gate-all-around / advanced packaging revenue contribution.
  • Industry data — May/June SEMI WFE forecast updates and SEMICON West announcements provide direct read-throughs for AMAT’s CY26 framework.
  • Customer commentary — TSMC and Samsung mid-July earnings will refine CY26 capex magnitude; a TSMC capex raise above $52B would directly support our model.
  • Memory pricing — DRAM contract pricing trends (TrendForce, DRAMeXchange) will signal whether HBM-driven capex sustainability holds into 2H FY26.
  • Capital return — initial cadence under the new $10B buyback authorization (announced March 2026) and the June 11 dividend payment.