Applied Materials delivered stronger-than-expected earnings and guidance, but AMAT fell more than 5% in extended trading as investors decided a beat was not enough after the stock’s 2026 rally.
Fiscal third-quarter revenue rose 25% year on year to $9.12 billion, above Wall Street’s $8.99 billion estimate, while adjusted earnings climbed 41% to $3.50 a share.
Applied then forecast fourth-quarter revenue of about $10.25 billion and adjusted EPS of $4.02, ahead of consensus.
The sell-off looked less like disappointment with the business and more like a collision with expectations that had become difficult to exceed.
Applied delivered a beat, just not a blowout
The underlying quarter gave investors plenty to like.
Semiconductor Systems revenue reached $7.04 billion, with DRAM accounting for 26% of sales, up from 22% a year earlier.
Applied Materials also posted its 13th consecutive quarter of year-on-year gross-margin expansion.
Chief financial officer Brice Hill said customer visibility was longer than ever, with some conversations extending to 2030.
He expects strong second-half growth in DRAM, leading-edge foundry and logic, and advanced packaging.
Still, the stock had already more than doubled this year. William Blair, in commentary reported by TipRanks before earnings, noted that Applied had risen 103% in 2026 and traded at about 29 times its 2027 earnings estimate.
The firm assigned a Market Perform rating, arguing that strong growth prospects were increasingly reflected in the price.
That is the central problem, as Wall Street was not waiting for proof that Applied could grow. Investors had already paid heavily for that outcome.
AI demand is getting stronger, not weaker
Nothing in the outlook suggested the AI equipment boom is fading.
Applied expects advanced-packaging revenue to grow more than 70% this calendar year, above its previous forecast of more than 50%.
Management is also investing in additional manufacturing capacity to support demand through the end of the decade.
UBS recently raised its Applied Materials price target to $705 from $570. Investopedia reported that the bank sees “clearer evidence that equipment companies are raising pricing to drive margins higher.”
That thesis received support from Thursday’s numbers. Non-GAAP gross margin reached 50.4%, up 1.5 percentage points from a year earlier, while adjusted operating margin rose to 34%.
Bank of America analyst Vivek Arya has described the semiconductor sector’s recent weakness as a “summer reset, not a fundamental reversal,” according to MarketWatch, while remaining constructive on AI investment and wafer-fabrication equipment.
When great results stop being good enough
Expectations entering the report were elevated after results from equipment rivals Lam Research and KLA.
Stifel analyst Brian Chin told Reuters that those peer performances had helped set a high bar.
CFRA analyst Brooks Idlet described Applied’s quarter as solid and said 2027 consensus estimates could still have room for upside if recent momentum persists.
There was one blemish. GAAP EPS was $3.17 after a $220 million unrealised investment loss weighed on reported profit. But adjusted earnings still beat expectations, making that a secondary concern.
Options traders had been pricing a roughly 7% earnings move, another indication that investors were prepared for something dramatic.
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