After Earnings, Is Applied Materials Stock a Buy, a Sell, or Fairly Valued?

Applied Materials released its fiscal second-quarter earnings report on May 14. Here’s Morningstar’s take on Applied’s earnings and stock.

Key Morningstar Metrics for Applied Materials

• Fair Value Estimate
  : $470.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Applied Materials’ Fiscal Q2 Earnings

Applied’s April quarter results were strong, and guidance was even better. Sales rose 11% year-on-year to $7.9 billion, and guidance calls for growth to accelerate to 23%. Applied now expects to grow its equipment sales by more than 30% in calendar 2026.

Why it matters: The artificial-intelligence-driven growth cycle for chip equipment is strengthening, and we now expect even stronger growth through 2028. We see Applied as well-positioned for leading-edge logic, dynamic random-access memory, and advanced packaging supply buildouts.

• Applied offers the widest breadth in chip equipment and the deepest capabilities for both DRAM and logic deposition. We see it gaining market share across this growth cycle. We expect share gains for other wide-moat incumbents as well, but it appears Applied is growing the fastest.
• Management raised its long-term services growth target to the mid-teens, up from low-teens. We find this credible—rapid buildouts of chip capacity require commensurately more services, and we believe demand for higher yields in a supply-constrained environment augments demand for services.

The bottom line: We raise our fair value estimate for wide moat Applied to $470 per share from $380, driven by a higher growth forecast through 2028. Shares were flat after hours, signaling that investors expected the strong guidance raise. Applied stock looks fairly valued.

• We’re above management’s 30% equipment growth target for 2026 (35%), as we expect momentum in the current upcycle to continue accelerating through the year. In 2027, we model mid-20% total revenue growth, and 18% in 2028 to round out the three-year cycle we expect.
• Applied is up over 150% in the last 12 months and over 70% year-to-date as investors have priced in the AI growth cycle. This appreciation looks justified to us, as we forecast 24% annualized growth over three years, up from historical growth in the mid-single digits.

Fair Value Estimate for Applied Materials

With its 3-star rating, we believe Applied stock is fairly valued compared with our long-term fair value estimate of $470. Our valuation implies a fiscal 2026 adjusted price/earnings multiple of 38 times and a fiscal 2026 enterprise value/sales multiple of 10 times. Our valuation implies multiples of 27 times fiscal 2027 non-GAAP earnings and 22 times for 2028. The biggest drivers of our valuation are the growth of wafer fabrication equipment spending and Applied’s ability to increase market share. We forecast 17% compound annual sales growth for Applied through fiscal 2030.

Read more about Applied Materials’ fair value estimate.

Economic Moat Rating

We assign Applied a wide moat on the basis of intangible assets and switching costs. Applied’s proficiency in wafer fabrication equipment is the result of top-notch design expertise, in our view, and we think its embedded services business and long-term customer roadmaps are sticky. We also believe the investment required to remain at the forefront of chip development (particularly across so many subsections of the market) creates an immense barrier to entry to all but the largest and best-capitalized chip equipment manufacturers. We expect Applied to earn returns on invested capital well above its cost of capital, more likely than not, for the next 20 years.

Read more about Applied Materials’ economic moat.

Financial Strength

We expect Applied to focus on generating strong cash flow while prioritizing research and development investment. We also expect it to remain moderately leveraged. As of October 2025, Applied held a net cash position, with $8.6 billion in cash and liquid investments compared with $6.6 billion in total debt. We like Applied’s strong balance sheet, which is supported by long-dated debt, the majority of which doesn’t come due until after 2030. Applied also has a $1.5 billion revolver it could tap into if needed.

Applied’s strong balance sheet is strengthened by robust cash flow. Over the past five fiscal years, Applied has averaged $6 billion in annual free cash flow, and we expect this number to jump over our five-year forecast to more than $8 billion as its volume grows. Both of these are close to 90% conversion of Applied’s net income.

Read more about Applied Materials’ financial strength.

Risk and Uncertainty

We assign a High Uncertainty Rating to Applied. The firm is prone to cyclicality in the semiconductor industry, with times of oversupply and lower capital expenditures followed by times of strong demand and manufacturing buildouts. Results can fluctuate with semiconductor end demand, but we retain our belief that Applied can grow in the long term.

Applied also faces risk from geopolitical uncertainty, primarily between the United States and China. The US government has levied export restrictions on advanced semiconductor manufacturing equipment, although this impact is already digested, and Applied can largely compensate with demand elsewhere in the world, in our view. Competitors are often more specialized than Applied, and if it can’t adequately invest, it could find itself losing out. Applied also bears risk from a concentrated customer base. If a relationship with a large manufacturer like TSMC, Samsung, or Intel were to sour, its competitive position could worsen.

We foresee little environmental, social, and governance risk for Applied. Its primary risk in this domain would be losing human capital to other WFE firms. If Applied can’t maintain its critical engineers, it could start to see its intangible assets erode.

Read more about Applied Materials’ risk and uncertainty.

AMAT Bulls Say

• Applied is the largest WFE provider in the world, with the broadest portfolio and the largest R&D budget of its peers.
• We expect Applied to benefit from drivers of chip complexity, like gate-all-around transistors and advanced packaging.
• Applied has strong profit margins and cash flow, and it sends most of its cash flow back to shareholders.

AMAT Bears Say

• We consider Applied to be a generalist in WFE. More specialized firms like Lam Research and KLA could outcompete it in their respective markets.
• Applied faces cyclicality in the semiconductor market, which can lead to years with lower sales and margin compression.
• Applied faces risk from geopolitical tensions between the US and China, which may further inhibit its ability to ship to Chinese chipmakers.

This article was compiled by Jillian Moore.