On August 13, Applied Materials (NASDAQ:AMAT) reported the biggest quarter-over-quarter revenue jump in its history, and the numbers back up the headline. Revenue climbed to $9.12 billion, up 25% year over year, while non-GAAP earnings per share jumped 41% to $3.50. Behind those figures sits a company that says its main constraint right now isn’t finding customers; it’s building fast enough to keep up with them.
A Backlog That Keeps Growing
Management’s core argument is that demand for advanced chips is running well ahead of what the industry can supply, and that gap is showing up directly in Applied’s order book. Customers are now handing the company rolling eight-quarter forecasts, with some conversations stretching out to 2030, and more than 10 new fab projects were announced in the quarter alone. That visibility is already showing up in the segment results. DRAM revenue, boosted by high bandwidth memory packaging, grew 52% year over year to a record, and advanced packaging overall is now projected to grow more than 70% in calendar 2026 as chipmakers shift toward 3D chiplet stacking.
Applied added Broadcom as an EPIC innovation partner during the quarter, bringing its total count of these co-development partnerships to 11, spanning chipmakers, system companies and research universities. Process diagnostics and control revenue is tracking to grow more than 50% this year, faster than the overall systems business. None of this has come at the expense of profitability. Non-GAAP gross margin reached 50.4%, marking the 13th straight quarter of year-over-year expansion, and operating margin hit a record 34%. Guidance for the next quarter calls for revenue of $10.25 billion, which would be a 51% increase from a year earlier.
The Price Of Growing Fast
That growth isn’t free. Chief Financial Officer Brice Hill said the company expects its tax rate to rise to roughly 13% in 2027 as it absorbs the impact of the global minimum tax, a direct hit to the bottom line that has nothing to do with operations. Hill also pointed to “ramp costs that are in the forecast,” a reference to the more than 1,500 people Applied hired this quarter in manufacturing and customer support to keep pace with demand. New hires take time to reach full productivity, which means near-term expense growth may outpace revenue in some periods even as the top line surges.
Applied is also flagging that its fiscal first quarter of 2027 will run 14 weeks instead of the usual 13, producing a higher-than-normal step-up in operating expenses for that period. On top of that, Chief Executive Gary Dickerson acknowledged that customers have historically been constrained by clean room space when it comes to taking tool deliveries, a structural bottleneck that, even as customers find workarounds, could resurface if capacity additions don’t keep pace with equipment orders. Layer in that China still accounted for 28% of total revenue, and any shift in export rules or regional demand remains a variable the company doesn’t fully control.
Wall Street’s Quiet Confidence
Hedge fund interest in Applied Materials held essentially flat going into this report, with 137 funds holding a position in the most recent quarter compared with 138 in the prior one, which reads as neither accumulation nor retreat. Short interest sits at just 1.50% of the float, a level that signals almost no organized skepticism toward the stock. As of August 27, investors are paying a forward P/E of 27.17 for that growth profile, a multiple that only makes sense if the current AI-driven capacity boom keeps compounding rather than leveling off.
The Open Question
Applied Materials is heading into fiscal 2027 with more demand visibility than management says it has ever had, and margins that have now expanded for 13 consecutive quarters. Still, a rising tax rate, a wave of new hires still ramping into productivity, and a longer fiscal quarter next year all chip away at the operating leverage that got the company here. The fab and packaging investments now underway need to turn into shipped systems without running into the clean room bottlenecks that have slowed deliveries in the past.
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