AMAT rides on AI-driven chip demand and memory shortages into 2026, but can high-margin innovations offset consumer electronics weakness?
Applied Materials $AMAT AMAT, being the leading manufacturer of wafer fabrication equipment products, is benefiting from the huge demand from chip manufacturers serving the AI market and the supply shortage of memory chips in late 2025, as memory production is being redirected toward high-margin AI applications, including HBM and DDR5.
Given this scenario, AMAT is now facing a mix of opportunities and challenges. As the global companies are investing heavily in AI, AMAT has a massive upside from AI-driven capex. Memory makers like Samsung Electronics, SK Hynix and Micron $MU Technology are driving the demand for WFE products, and complex processes are helping AMAT to charge a premium.
Weakness in consumer electronics is a drag for AMAT. Applied Materials is de-risking its business by focusing on high margin AI-related processes. Applied Materials deepened its partnership with SK hynix and Micron Technology for R&D to accelerate next-generation memory innovation, particularly in DRAM and HBM for AI applications.
The collaboration will focus on new materials, advanced process technologies and 3D packaging to enhance performance and efficiency. Applied Materials expects its leading-edge foundry, logic, DRAM and high-bandwidth memory (HBM) to be the fastest-growing wafer fabrication equipment (WFE) businesses in 2026.
Given AMAT’s diverse portfolio across multiple processes, it reduces reliance on any single technology cycle and enables it to price its product stack better to protect margins, which is expected to experience a double-digit growth trajectory throughout 2026.
Lam Research $LRCX LRCX secured multiple critical etch wins at a major DRAM manufacturer with its new Akara etch system, which supports 3D DRAM architectures. This was supported by LRCX’s customer investments in DDR5, LPDDR5 and high-bandwidth memory. Additionally, Lam Research’s Aether dry-resist technology was recently selected as the production tool of record for a leading DRAM customer, securing a foothold in this high-growth segment.
ASML $ASML Holding ASML is experiencing strong demand from DRAM and logic customers, which are ramping up leading-edge nodes using ASML’s NXE:3800E EUV systems. ASML noted that multiple DRAM customers are adopting EUV lithography, which helps in shortening cycle time and lowering costs. However, AMAT offers a broad range of WFE products that do not compete directly with ASML and Lam Research, making the stock worth holding.
Shares of Applied Materials have surged 139.5% in the past twelve months compared with the Zacks Electronics - Semiconductors industry’s growth of 72.9%.
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From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 8.36X, higher than the industry’s average of 7.1X.
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The Zacks Consensus Estimate for Applied Materials’ fiscal 2026 and 2027 earnings implies year-over-year growth of 17.9% and 26.4%, respectively. The estimates for fiscal 2026 and 2027 have been revised downward over the past 30 days.
Image Source: Zacks Investment Research
Applied Materials currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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