Applied Materials
It makes the machines that build computer chips, the tools that lay down, etch away, polish and measure each layer, and services the ones already running in chip factories.
Our viewNeutral Medium conviction
The scores
The profile · 1-4
Growth3/4 ↑
Revenue is accelerating hard, but the record is a year old: fiscal 2025 and 2024 grew 4.4% and 2.5%, on customers' own capital budgets.
Business quality3/4 →
A rival's own filing states the qualification lock-in, but it is held per step per node, and China's entrants already take the trailing-edge tools.
Financial position4/4 →
Cash and investments are more than twice total debt, nothing is drawn on the facilities, and operating cash covered capital spending, dividends and buybacks.
Execution record3/4 →
Eight consecutive beats and a buyback paused at the high, but a $253M export-controls settlement and continuing subpoenas keep it below the top level.
Per share capture4/4 ↓
Repurchases still exceed stock compensation and the count is shrinking, but at 3 million shares this year against 25 million last year.
Potential2/4 ↑
The upside is a bigger version of today and rests on customers' own annual capital decisions, behind one cancellable quarter of contracted equipment orders.
Risk profile2/4 →
Two unnamed customers are about a third of sales, and 28% ships to China under export licences a single Commerce rule can withdraw.
Valuation2/4 ↓
42 times trailing profit against a six-year normal of 19, and 26 times a fiscal 2027 consensus that itself needs 36% revenue growth.
Evidence quality3/4 →
Every load-bearing figure is filed and reconciles, but the only contracted equipment orders anyone outside can check are now eleven months old.
The Verdict
We rate Applied Materials neutral. It makes the machines chipmakers need to build each layer of a chip, and every operating number is at a record, so the business is solid. But its profit is flattered by a tax rate that halved and by paper gains on investments, and its record earnings have not turned into cash. The price treats this boom as permanent, at about twice its usual price for each dollar of profit, so it is full, not cheap. The view hinges on the cash: if unpaid customer bills fall and cash follows the earnings, the price begins to look fair.
The long caseChipmakers are re-tooling for AI, with new logic, memory and packaging, and they buy Applied's machines to do it; their spending plans must hold, not reset lower.
The evidence under this - 9 claims
C05facthigh confidence
Net income for the first nine months of fiscal 2026 was $7,370M against $5,101M, and diluted earnings per share $9.22 against $6.29 - growth of 46.6% against revenue growth of 11.4%.
C06estimatehigh confidence
Only 37.5% of the increase in nine-month net income came from operating income. Of the $2,269M rise, operating income supplied $852M; interest and other income net supplied $612M and a smaller tax charge supplied $813M.
derivedApplied's own figures for the nine months ended 26 July 2026 against the nine months ended 27 July 2025: operating income $7,429M against $6,577M (+$852M); interest and other income net $1,237M against $625M (+$612M); interest expense $206M against $198M (-$8M); provision for income taxes $1,090M against $1,903M (-$813M). Those four sum to $2,269M, which is exactly the change in net income, so the split is arithmetic rather than an allocation. 852/2,269 = 37.5%.
against this
- The operating improvement underneath is real and is not a mix artefact: Semiconductor Systems' gross margin rose to 55.3% from 53.4% and its operating margin to 37.7% from 33.0% in Q3 fiscal 2026, on a recast basis.
- The direction reverses inside the period. In Q3 alone, interest and other income was a $100M expense against $396M of income a year earlier - a $496M swing against Applied - and the quarter's net income still rose 43%.
C08facthigh confidence
The effective tax rate for the first nine months of fiscal 2026 was 12.9% against 27.2% a year earlier, and 12.7% against 30.6% in Q3 alone. Applied attributes the fall to a remeasurement of deferred tax assets from new Singapore tax incentive agreements and to a valuation allowance recognised in fiscal 2025 against corporate alternative minimum tax credits.
against this
- Part of the fall is a prior-year effect rather than a current-year benefit: the $410M alternative minimum tax valuation allowance sat in fiscal 2025 and made that base rate unusually high.
- The One Big Beautiful Bill Act raised the CHIPS Act investment tax credit from 25% to 35% for qualifying property placed in service after 31 December 2025 and allows immediate expensing of domestic research costs, so part of the lower rate is enacted law rather than a one-off.
C10facthigh confidence
Free cash flow for the first nine months of fiscal 2026 was $3,580M against $3,655M a year earlier - 2.1% lower on revenue 11.4% higher. Operating cash flow was $5,568M against $5,130M and capital expenditure $1,988M against $1,475M.
against this
- Applied reports a record $3,037M of operating cash flow in Q3 alone, and $2,330M of non-GAAP free cash flow in the quarter against $2,050M a year earlier - so the nine-month shortfall was made in the first half and the quarter itself converted well.
- Capital expenditure is rising deliberately: management says fiscal 2026 will be a higher-than-normal capital spending year and that capital spending will fall as a share of revenue in 2027.
C11facthigh confidence
Accounts receivable took $2,508M of cash in the first nine months of fiscal 2026 against $538M a year earlier - more than the $2,469M by which revenue grew over the same period. Inventories took a further $609M. Running the other way, contract liabilities released $698M, payables and accruals $412M and income taxes payable $462M.
against this
- Contract liabilities rose $698M, which is customers paying ahead for tools not yet delivered, and is the opposite signal to the receivable build.
- Applied's own explanation is mechanical rather than commercial: days sales outstanding rose to 77 from 72 because of higher down-payment invoices for revenue not yet recognised and because it factored fewer receivables than a year earlier. Neither is a change in the terms on which tools are sold.
C12management claimmedium confidence
Applied says days sales outstanding rose to 77 days at 26 July 2026 from 72 a year earlier, driven by higher down-payment invoices for which revenue has not yet been recognised and by less receivable factoring than in the prior year.
against this
- Neither reason is quantified anywhere in the filing, and the two run in opposite directions as evidence: down-payment invoicing means customers are paying earlier, while less factoring means Applied chose to carry the receivable itself rather than sell it. The second is a financing decision, not a demand signal.
- Days sales outstanding of 77 is high for a company whose revenue is recognised on delivery, and it moved five days in a year in which revenue rose 11.4% - so the change is larger than growth alone accounts for.
C29facthigh confidence
At $485.00, the 25 September 2026 close, the shares cost 41.6 times trailing earnings against a six-year median of 18.7 times, 12.5 times sales against 4.8, and 33.9 times enterprise value to cash profit against 15.1. The free cash flow yield is 1.5% against a six-year median of 5.4%. The market value is about $384.9B.
sourceResearch pack frozen at content/AMAT/research-pack.jsonprimaryForm 10-Q for the quarter ended July 26, 2026primaryQ4 and fiscal year 2025 results release (8-K Exhibit 99.1)primary
against this
- The six-year median spans fiscal years in which revenue grew 2.5% and 4.4% and the operating margin sat near 29%; the business guided for Q4 fiscal 2026 is growing 50.7% at a 33.7% operating margin, so the two periods are not the same company at the same point in its cycle.
- Applied's filed competitor cohort trades higher on every earnings and sales multiple, and the whole cohort's earnings multiple has moved with Applied's in both directions - down over the nine days to 16 September and up by almost exactly the same proportion in the seven sessions to 25 September - so most of each repricing is the trade's rather than the company's.
- The multiple is struck on GAAP earnings that are themselves flattered this year: on Applied's own adjusted definition, trailing adjusted earnings of $10.91 a share, the trailing multiple is 44.5 times rather than 41.6.
- 2026-09-27editedRe-struck at the 25 September 2026 close of $485.00 after a 16.8% rise from $415.38; every multiple, the cash yield and the market value re-read from the refreshed research pack, the six-year medians unchanged.
C35estimatemedium confidence
Applied's own guidance implies fiscal 2026 revenue of about $34.29B, growth of 20.9%, and non-GAAP earnings of about $12.76 a share - so the shares cost about 38.0 times the year the company has already guided and about 25.9 times the fiscal 2027 consensus.
derivedNine-month revenue of $24,037M plus the $10,250M midpoint of the Q4 guide gives $34,287M, against fiscal 2025's $28,368M. Non-GAAP diluted earnings per share of $2.38 in Q1, $2.86 in Q2 and $3.50 in Q3 plus the $4.02 guide midpoint gives $12.76. At $485.00, the 25 September 2026 close, that is 38.0 times; against the pack's fiscal 2027 consensus of $18.71 it is 25.9 times.
against this
- The Q4 guide has been beaten in each of the last eight quarters, so $12.76 is more likely a floor than a midpoint, and a beat lowers the multiple.
- The fiscal 2027 figure is a vendor consensus struck on the adjusted definition and carries no contracted order book behind it; the only equipment backlog anyone outside can check is one quarter of the guided shipment rate.
- 2026-09-27editedRe-struck at the 25 September 2026 close of $485.00 and the refreshed fiscal 2027 consensus of $18.71; the guidance arithmetic is unchanged.
C30factmedium confidence
Applied's trailing price-to-earnings multiple is the lowest in its filed competitor cohort.
against this
- Applied is also the slowest-growing member of that cohort over the trailing twelve months and carries its lowest gross margin, so the discount is consistent with what the cohort's own figures say about the business rather than being unexplained.
- The whole cohort re-prices with Applied in both directions: at the 16 and the 25 September closes alike Applied sat at about three quarters of the cohort's median earnings multiple, just above the threshold below which a cohort may move a valuation score at all.
- 2026-09-27editedRe-read against the refreshed cohort at the 25 September 2026 close: still the lowest earnings multiple of the four, at about three quarters of the cohort median as before, because the cohort rose with Applied.
The company
A chip is built on a silicon disc, layer by layer. Applied sells the machines for seven of the steps: laying films down, growing crystal, etching material away, polishing flat, firing in atoms, heating, and measuring what the others did. Its buyers are the companies that own the chip factories.
A second business sells the spare parts, upgrades and servicing that keep those machines running.
The evidence under this - 1 claim
C01facthigh confidence
Applied Materials' Semiconductor Systems segment sells the equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging and ion implantation; its Applied Global Services segment sells spares, upgrades, services, 200-millimetre equipment and factory automation software to the same fabs.
How it makes money
Most of it comes from selling machines: $7.04B of the June quarter's $9.12B. Each is a large sale to one of a handful of chipmakers, and two customers the filings never name buy about a third. The steadier fifth is servicing machines already installed, at 30 cents of operating profit on the dollar.
The evidence under this - 3 claims
C02facthigh confidence
Q3 fiscal 2026 revenue was $9,115M: Semiconductor Systems $7,040M, Applied Global Services $1,781M and Other $294M. Other is where the display business now sits, and it lost $118M at the operating line against $4M a year earlier.
C16facthigh confidence
Two customers were approximately 20% and 14% of revenue in the first nine months of fiscal 2026, and approximately 19% and 15% in fiscal 2025. Neither is named anywhere in the filings.
C44facthigh confidence
Applied's own annual report names "customers that choose to perform their own service" as competition in the Applied Global Services segment, which was 20% of Q3 fiscal 2026 revenue at a 30.1% operating margin. On the equipment side both Lam Research and ACM Research name SEMES Co., Ltd. among their competitors.
sourceForm 10-K for the fiscal year ended October 26, 2025primaryLam Research Form 10-K for the fiscal year ended June 28, 2026primaryACM Research Form 10-K for the fiscal year ended December…primary
against this
- Self-service is the cheapest thing a customer can insource and the least of it: spares and uptime, not the tool. Nothing read here shows a chipmaker qualifying its own deposition, etch, planarization or implant equipment at a leading-edge node.
- Applied's service revenue grew 18% over the first nine months of fiscal 2026 and its segment operating margin rose to 30.1% from 27.3%, which is not what a segment losing work to its own customers looks like.
Where the money comes from, stream by stream
| Stream | Share of sales (Q3 fiscal 2026) | How it earns it |
|---|---|---|
| Chipmaking equipment for foundry, logic and other | about 52% (67% of Semiconductor Systems) | Deposition, etch, implant, polishing and inspection tools sold to contract foundries and logic chipmakers building leading-edge factories. |
| Chipmaking equipment for DRAM | about 20% (26% of Semiconductor Systems) | The same tool families sold to memory makers moving DRAM to new technology nodes and high-bandwidth memory. |
| Chipmaking equipment for NAND flash | about 5% (7% of Semiconductor Systems) | Tools sold to flash-memory makers adding layers to storage chips. |
| Applied Global Services | 20% | Spare parts, long-term service agreements and upgrades for the installed base of Applied tools. |
| Other (display) | 3% | Equipment for making display panels, now reported in Corporate and Other. |
Who runs it
Gary Dickerson has run Applied since 2013, after running a smaller chip-tool maker Applied bought; Brice Hill has run its finances since 2022. Insiders own well under 1% of the company, so they act as managers more than owners. The yearly bonus pays only once adjusted profit clears a bar. Most of the chief executive's pay is shares that vest on profit above the cost of the money tied up in the business, and on beating the stock market.
The evidence under this - 3 claims
C47facthigh confidence
Gary Dickerson has been President since June 2012 and Chief Executive since September 2013, having run Varian Semiconductor until Applied bought it in 2011; Brice Hill has been Chief Financial Officer since March 2022, from Xilinx; Prabu Raja has led the Semiconductor Products Group as President since March 2023.
C48facthigh confidence
At December 31, 2025 the 15 directors and executive officers as a group beneficially owned 2,405,861 shares, about 0.3% of the 792,705,219 outstanding; Gary Dickerson's 1,398,872 were the largest insider holding. BlackRock at 9.69% and Vanguard at 9.35% were the only holders above 5%.
C49facthigh confidence
Applied's fiscal 2025 bonus paid only above a $6.25 non-GAAP EPS hurdle, then on a scorecard weighted half to financial and market results for the CEO; it paid 88.1% to 97.5% of target. CEO equity is 75% PSUs, vesting half on three-year non-GAAP economic profit (operating margin before fiscal 2025) and half on return against the S&P 500.
against this
- The 2020 long-term value-creation awards to Dickerson and Raja vested in full at the end of fiscal 2025 on the share price alone, which moves with the whole equipment cohort (C40).
- The fiscal 2023 to 2025 PSUs paid above target on non-GAAP operating margin, a figure that sat near 29% throughout those years (C50).
Why it wins, and who could beat it
Why customers come back
Once a chipmaker has approved a machine for a step, it keeps it. Proving a new one costs engineering time and wasted wafers, so the choice is made once per step for each chip generation.
The evidence comes from a rival. Lam Research's own annual report says it struggles to sell to a customer that has approved a competitor's machine, and names Applied as that competitor in depositing and etching. Applied's gross margin has risen from a year earlier for 13 quarters running.
The evidence under this - 3 claims
C19facthigh confidence
Lam Research's own annual report says a semiconductor manufacturer must make a substantial investment to qualify and integrate new capital equipment into a production line, that once it has qualified a supplier's equipment it generally maintains that selection for that production application and technology node, and that Lam may therefore have difficulty selling to a customer that has qualified a competitor's equipment.
against this
- The same filing qualifies the lock-in: the selection holds only 'as long as the supplier's products demonstrate performance to specification in the installed base', and it is stated per production-line application and per technology node - so every node transition reopens the decision, and Applied's largest customers are transitioning nodes continuously.
- It also notes competition from third-party spare-parts providers on the service half, which is 20% of Applied's revenue and the higher-retention part of it.
C20facthigh confidence
Lam Research's own annual report names Applied Materials as its primary competitor in the dielectric and metals deposition market and among its primary competitors in the etch market.
C25facthigh confidence
Q3 fiscal 2026 gross margin was 50.3% against 48.8%, which Applied describes as its thirteenth consecutive quarter of year-on-year gross margin expansion, and Semiconductor Systems' operating margin was 37.7% against 33.0% on a recast basis.
The threat
The threat is in China, 28% of June-quarter sales. US export rules have already closed part of that market, and Applied says they have raised its exposure to local rivals. ACM Research's own annual report names two, NAURA and Suzhou Jingtuo, at steps Applied sells into.
The evidence under this - 3 claims
C17facthigh confidence
China was $2,506M, or 28%, of Q3 fiscal 2026 revenue and 28% of the first nine months; Asia Pacific was 80% of the quarter. Applied says US export regulations have limited the market for certain of its products and services, adversely impacted revenues, and increased its exposure to foreign and Chinese domestic competition.
sourceForm 10-Q for the quarter ended July 26, 2026primaryForm 10-K for the fiscal year ended October 26, 2025primary
against this
- China revenue fell 2% year on year in Q3 fiscal 2026 while the total rose 25%, so the dependence is shrinking as a share even as the absolute figure holds. United States revenue doubled and Europe tripled in the same quarter.
- Management said on the Q3 call that it expects its China business and its wider trailing-edge business to grow in both calendar 2026 and 2027, having previously described a digestion period.
C18facthigh confidence
ACM Research's own annual report names NAURA Technology Group and Suzhou Jingtuo Semiconductor Technology among its principal competitors, names Applied Materials among the principal competitors for its own deposition and track products, and says it faces additional mainland China competitors across multiple product lines because of recent entrants among local equipment suppliers.
against this
- The same filing warns that mainland China's state-led investment programme could produce overcapacity and price discounting rather than a durable competitor, which would hurt the entrants as much as the incumbents.
- Nothing in any filing read here shows a mainland China toolmaker qualified at a leading-edge foundry, logic or DRAM customer outside China, which is where 67% of Applied's Semiconductor Systems revenue sits.
C44facthigh confidence
Applied's own annual report names "customers that choose to perform their own service" as competition in the Applied Global Services segment, which was 20% of Q3 fiscal 2026 revenue at a 30.1% operating margin. On the equipment side both Lam Research and ACM Research name SEMES Co., Ltd. among their competitors.
sourceForm 10-K for the fiscal year ended October 26, 2025primaryLam Research Form 10-K for the fiscal year ended June 28, 2026primaryACM Research Form 10-K for the fiscal year ended December…primary
against this
- Self-service is the cheapest thing a customer can insource and the least of it: spares and uptime, not the tool. Nothing read here shows a chipmaker qualifying its own deposition, etch, planarization or implant equipment at a leading-edge node.
- Applied's service revenue grew 18% over the first nine months of fiscal 2026 and its segment operating margin rose to 30.1% from 27.3%, which is not what a segment losing work to its own customers looks like.
The rivals: LRCX, KLAC, ONTO, ACMR, KLIC, and 3 more that are private, in-house or listed abroad.
Who else does this, rival by rival
| Ticker | Rival | How far along | Priced against it |
|---|---|---|---|
| NAURA Technology Group Co., Ltd.Priced against it: Listed abroad | On sale | Listed abroad | |
| Private | Suzhou Jingtuo Semiconductor Technology Co., Ltd.Priced against it: Private | On sale | Private |
| LRCX | Lam Research CorporationPriced against it: Yes | On sale | Yes |
| SEMES Co., Ltd.Priced against it: Listed abroad | On sale | Listed abroad | |
| KLAC | KLAPriced against it: Yes | On sale | Yes |
| ONTO | Onto InnovationPriced against it: Yes | On sale | Yes |
| ACMR | ACM ResearchPriced against it: Shown, not counted | On sale | Shown, not counted |
| KLIC | Kulicke and Soffa IndustriesPriced against it: One segment only | On sale | One segment only |
How big it could get
How big this could get
Two customers alone plan $79B to $83B of factory spending in 2026: TSMC $52B to $56B, up from $40.9B last year, and Micron about $27B.
The market can grow even when factories do not. TSMC's capacity barely moved in 2025 while its spending rose about 33%, so each wafer is taking more equipment.
The evidence under this - 3 claims
C22facthigh confidence
Taiwan Semiconductor Manufacturing Company's own annual report states capital expenditure of US$40,895M in 2025 and expects US$52 billion to US$56 billion in 2026.
against this
- The same filing says the 2026 figure 'depending on market conditions, may be adjusted later', so it is a plan rather than a commitment, and TSMC has adjusted it before.
- A capital plan is not an equipment order. Most of the increase may sit in buildings, cleanroom shell and utilities rather than in process tools, and the filing does not split it.
C23facthigh confidence
TSMC's own annual report states that its annual capacity exceeded 17 million 12-inch equivalent wafers in 2025 against approximately 17 million in 2024, while its capital expenditure rose about 33% in the same year.
C24facthigh confidence
Micron Technology's own quarterly report estimates capital expenditure for property, plant and equipment, net of proceeds from government incentives, at approximately $27 billion in 2026.
against this
- It is stated net of government incentives and Micron says the actual amount will vary with market conditions and with the timing of those incentives, so the gross figure and the phasing are both unstated.
- Memory capital spending is the most cyclical part of the equipment market: Micron's own risk factors describe the threat of oversupply from significant investment by Chinese state-affiliated entities.
Who has signed
Less than it looks. The only orders on hand anyone outside can check are $15.0B at October 2025, of which $7.1B is machines, and Applied says they can be amended or cancelled. Management points instead to its customers' eight-quarter forecasts, which are not orders and appear in no filing.
The evidence under this - 2 claims
C13facthigh confidence
Backlog at 26 October 2025 was $15,002M - Semiconductor Systems $7,105M, Applied Global Services $7,141M and Corporate and Other $756M. About 31% was not reasonably expected to be filled within twelve months, and Applied says the figure is subject to amendment and cancellation. No later backlog figure has been published.
against this
- Management describes a detailed 8-quarter rolling forecast from its largest customers and roughly five years of roadmap visibility, and says customers now place longer-lead purchase orders and accept cancellation and expedite charges. That is more forward information than the backlog line carries - but it is a forecast the customer supplies, not an order it has placed, and none of it is filed.
- The equipment backlog is small relative to shipments by construction, because Applied recognises revenue on delivery rather than over a contract term. The service backlog is larger than the equipment backlog on a quarter of the revenue for the same structural reason.
C28management claimmedium confidence
Management said on 13 August 2026 that its semiconductor equipment business would grow by more than the 'greater than 30%' guided in May for calendar 2026, having guided 'greater than 20%' in February, and that it expects another strong growth year in 2027 - without putting a number on either.
sourceQ3 fiscal 2026 earnings call transcript, question sectionprimaryQ2 fiscal 2026 results release (8-K Exhibit 99.1)primary
against this
- Asked directly by an analyst whether it would commit to growing systems revenue 40% or more, the chief financial officer declined, saying only that Applied expects to outgrow the market.
- The same call disclosed that the capacity Applied is building is explicitly not a revenue forecast - asked whether doubling manufacturing capacity meant doubling revenue by 2028, the chief financial officer said it should be taken as capacity only.
The results
The numbers
Is it growing?Slow
Sales grew 7.8% over the twelve months to Jul 2026, about the same pace as the 4.4% in the year to Oct 2025.
Is it profitable?Strong
Operating margin is 30%, about where it was (29%) in the year to Oct 2023.
Does growth pay off?Flat
Running costs take 20¢ of each sales dollar, up from 17¢ in the year to Oct 2021.
Does it earn good returns?Strong
Each dollar put into the business earns 26% a year after tax, down from 36% in the year to Oct 2021.
Is it making cash?Strong
It turned 18% of sales into free cash, $5.62B over the last twelve months.
Is the balance sheet safe?Net cash
It holds $9.23B of cash against $7.74B of debt, $1.49B more cash than it owes.
Are shares being diluted?Shrinking
The share count fell 13% in 4.7 years, and pay in shares costs 2.2% of sales.
All the numbers
Filed figures from the company's 10-K and 10-Q, read 2026-10-04. Fiscal years end in October.
| Oct 2021 | Oct 2022 | Oct 2023 | Oct 2024 | Oct 2025 | 12 mo to Jul 2026 | |
|---|---|---|---|---|---|---|
| Size and growth | ||||||
| Sales | $23.1B | $25.8B | $26.5B | $27.2B | $28.4B | $30.8B |
| Sales growth | +34% | +12% | +2.8% | +2.5% | +4.4% | +7.8% |
| Profit | ||||||
| Gross margin | 47% | 47% | 47% | 47% | 49% | 49% |
| Operating margin | 30% | 30% | 29% | 29% | 29% | 30% |
| Net margin | 26% | 25% | 26% | 26% | 25% | 30% |
| What growth costs, per sales dollar | ||||||
| Research and development | 11% | 11% | 12% | 12% | 13% | 13% |
| Sales and marketing | 2.6% | 2.7% | 2.9% | 3.1% | 3.0% | 3.0% |
| General and admin | 2.7% | 2.9% | 3.2% | 3.5% | 3.2% | 2.5% |
| Pay in shares | 1.5% | 1.6% | 1.8% | 2.1% | 2.3% | 2.2% |
| Capital spending | 2.9% | 3.1% | 4.2% | 4.4% | 8.0% | 9.0% |
| Cash | ||||||
| Cash from operations | $5.44B | $5.40B | $8.70B | $8.68B | $7.96B | $8.40B |
| Free cash flow | $4.77B | $4.61B | $7.59B | $7.49B | $5.70B | $5.62B |
| Balance sheet | ||||||
| Cash and short-term investments | $5.46B | $2.58B | $6.87B | $9.47B | $8.57B | $9.23B |
| Debt | $5.45B | $5.46B | $5.56B | $6.96B | $6.55B | $7.74B |
| Net cash | $7.00M | −$2.88B | $1.31B | $2.51B | $2.02B | $1.49B |
| Returns and shares | ||||||
| Return on capital | 36% | 38% | 34% | 29% | 24% | 26% |
| Shares (diluted) | 919M | 877M | 845M | 834M | 808M | 800M |
What growth costs
Growth has not yet made Applied more profitable. It keeps more of each sale after building the machines, but it spends that gain on research and on new labs and factories, so the share of sales left as operating profit has barely moved in three years.
The evidence under this - 1 claim
C50facthigh confidence
Per sales dollar from fiscal 2023 to fiscal 2025 and the four quarters to July 2026: research, development and engineering 11.7, 12.6 and 12.9 cents; marketing and selling 2.9, 3.0 and 3.0; general and administrative 3.2, 3.2 and 2.5; stock pay 1.8, 2.3 and 2.2; capital spending 4.2, 8.0 and 9.0. Gross margin rose from 46.7% to 49.4% and operating margin from 28.9% to 29.6%.
sourceForm 10-K for the fiscal year ended October 26, 2025primaryForm 10-Q for the quarter ended July 26, 2026primary
against this
- Fiscal 2025 carries a $181M restructuring charge and the nine months to July 2026 a $253M export-controls settlement (C27), so the operating margin understates the underlying one in both periods.
- Capital spending includes the Singapore campus and the EPIC Center (C41), which are capacity and research facilities rather than a cost that recurs with each sale.
The last report (13 Aug)
Quarter ended July 2026, filed figures.
25%
Sales growth
against the same quarter a year earlier
15.2%
Growth from the quarter before
against 12.8% the quarter before that
34¢
Operating profit
per dollar of sales
The third quarter of fiscal 2026, ended 26 July, was a record, with the next quarter guided 50.7% above a year earlier. The shares still fell 5.1%.
The nine-month figures explain the doubt. Earnings per share rose 47% on sales up 11.4%, but only 37.5% of the profit increase came from the business itself. The rest was investment gains and a tax rate that fell from 27.2% to 12.9%. Unpaid customer bills took $2.51B of cash, more than sales grew.
What it did to the thesisIt confirmed the business underneath is stronger, with a record quarter and a large forecast. It also confirmed the caution behind the Neutral view: most of the profit growth came from investment gains and a lower tax rate, and the cash did not follow because customers owed more.
The quarter in detail
Sales growth from the previous quarter, filed figures.
Earnings per share $3.50 against $3.40 expected; $3.17 as filed, the gap being what the company adds back.
The evidence under this - 8 claims
C03management claimhigh confidence
Applied guided Q4 fiscal 2026 revenue to $10,250M plus or minus $500M and non-GAAP diluted earnings per share to $4.02 plus or minus $0.20. That revenue guide is 50.7% above the $6,800M of Q4 fiscal 2025.
against this
- Applied has beaten its own revenue and earnings guidance in each of the last eight reported quarters, so the guide has been conservative rather than stretched.
- Against that, management guided company gross margin flat on a 12.4% sequential revenue increase, attributing it to the cost of ramping customer service engineers and to the display business growing inside the Other line - so the guided revenue does not carry guided operating leverage with it.
C33facthigh confidence
The shares closed at $485.00 on 25 September 2026, 34.4% below the 252-day high of $739.67 reached on 30 June 2026 and 140.8% above the level of 252 trading days earlier. They fell 7.1% on 14 September 2026 and 5.1% on 14 August 2026, the session after the Q3 fiscal 2026 record beat and raise, and then rose 16.8% in the seven sessions from the $415.38 close of 16 September, including 6.5% on 18 September on the heaviest volume of the preceding 60 sessions.
- 2026-09-27editedRe-struck at the 25 September 2026 close of $485.00: the drawdown from the June high narrowed from 43.8% to 34.4% and the 16.8% rebound since 16 September is now part of the current state.
C04facthigh confidence
Revenue for the first nine months of fiscal 2026 was $24,037M against $21,568M a year earlier, up 11.4%, and operating income was $7,429M against $6,577M, up 13.0%.
C05facthigh confidence
Net income for the first nine months of fiscal 2026 was $7,370M against $5,101M, and diluted earnings per share $9.22 against $6.29 - growth of 46.6% against revenue growth of 11.4%.
C06estimatehigh confidence
Only 37.5% of the increase in nine-month net income came from operating income. Of the $2,269M rise, operating income supplied $852M; interest and other income net supplied $612M and a smaller tax charge supplied $813M.
derivedApplied's own figures for the nine months ended 26 July 2026 against the nine months ended 27 July 2025: operating income $7,429M against $6,577M (+$852M); interest and other income net $1,237M against $625M (+$612M); interest expense $206M against $198M (-$8M); provision for income taxes $1,090M against $1,903M (-$813M). Those four sum to $2,269M, which is exactly the change in net income, so the split is arithmetic rather than an allocation. 852/2,269 = 37.5%.
against this
- The operating improvement underneath is real and is not a mix artefact: Semiconductor Systems' gross margin rose to 55.3% from 53.4% and its operating margin to 37.7% from 33.0% in Q3 fiscal 2026, on a recast basis.
- The direction reverses inside the period. In Q3 alone, interest and other income was a $100M expense against $396M of income a year earlier - a $496M swing against Applied - and the quarter's net income still rose 43%.
C08facthigh confidence
The effective tax rate for the first nine months of fiscal 2026 was 12.9% against 27.2% a year earlier, and 12.7% against 30.6% in Q3 alone. Applied attributes the fall to a remeasurement of deferred tax assets from new Singapore tax incentive agreements and to a valuation allowance recognised in fiscal 2025 against corporate alternative minimum tax credits.
against this
- Part of the fall is a prior-year effect rather than a current-year benefit: the $410M alternative minimum tax valuation allowance sat in fiscal 2025 and made that base rate unusually high.
- The One Big Beautiful Bill Act raised the CHIPS Act investment tax credit from 25% to 35% for qualifying property placed in service after 31 December 2025 and allows immediate expensing of domestic research costs, so part of the lower rate is enacted law rather than a one-off.
C10facthigh confidence
Free cash flow for the first nine months of fiscal 2026 was $3,580M against $3,655M a year earlier - 2.1% lower on revenue 11.4% higher. Operating cash flow was $5,568M against $5,130M and capital expenditure $1,988M against $1,475M.
against this
- Applied reports a record $3,037M of operating cash flow in Q3 alone, and $2,330M of non-GAAP free cash flow in the quarter against $2,050M a year earlier - so the nine-month shortfall was made in the first half and the quarter itself converted well.
- Capital expenditure is rising deliberately: management says fiscal 2026 will be a higher-than-normal capital spending year and that capital spending will fall as a share of revenue in 2027.
C11facthigh confidence
Accounts receivable took $2,508M of cash in the first nine months of fiscal 2026 against $538M a year earlier - more than the $2,469M by which revenue grew over the same period. Inventories took a further $609M. Running the other way, contract liabilities released $698M, payables and accruals $412M and income taxes payable $462M.
against this
- Contract liabilities rose $698M, which is customers paying ahead for tools not yet delivered, and is the opposite signal to the receivable build.
- Applied's own explanation is mechanical rather than commercial: days sales outstanding rose to 77 from 72 because of higher down-payment invoices for revenue not yet recognised and because it factored fewer receivables than a year earlier. Neither is a change in the terms on which tools are sold.
What management did with the money
It slowed its buybacks sharply, to 3 million shares for $1.14B in nine months against 25 million for $4.0B a year earlier. It holds $14.5B of cash and investments against $6.5B of bonds.
Insiders in 2026Q2: 0 purchases and 39 sales, from their Form 4 filings.
The evidence under this - 2 claims
C14facthigh confidence
Applied repurchased 3 million shares for $1,137M excluding excise tax in the first nine months of fiscal 2026, against 25 million shares for $4,003M a year earlier. Diluted weighted-average shares were 799 million against 811 million, and about $12.8B of authorisation remained at 26 July 2026.
C15facthigh confidence
Cash, cash equivalents and investments were $14,501M at 26 July 2026 against $6,500M of senior unsecured notes and $100M of commercial paper, with nothing drawn on $4.0B of committed credit facilities.
The price, and where we disagree
In short. Full. The price pays for today's chip-equipment boom being a permanent step up, on a profit the tax rate flattered. It looks fair only once the cash starts to follow the earnings.
Share price
$485.00
close,
Price for each $1 of yearly profit
41.6
rivals' middle 54.4 · its 6-year normal 18.7
The shares are 34.4% below their June high while every operating number set a record. Three sharp drops came on worries about how long factory spending lasts. None came with a cut to analysts' forecasts, and each was made back within weeks, the September one by 25 September.
The question this thesis turns on is answered on 12 November: whether record sales arrive as cash, and what profit looks like once the tax rate stops falling.
The evidence under this - 5 claims
C33facthigh confidence
The shares closed at $485.00 on 25 September 2026, 34.4% below the 252-day high of $739.67 reached on 30 June 2026 and 140.8% above the level of 252 trading days earlier. They fell 7.1% on 14 September 2026 and 5.1% on 14 August 2026, the session after the Q3 fiscal 2026 record beat and raise, and then rose 16.8% in the seven sessions from the $415.38 close of 16 September, including 6.5% on 18 September on the heaviest volume of the preceding 60 sessions.
- 2026-09-27editedRe-struck at the 25 September 2026 close of $485.00: the drawdown from the June high narrowed from 43.8% to 34.4% and the 16.8% rebound since 16 September is now part of the current state.
C45facthigh confidence
Applied's shares reached a 252-day high of $739.67 on 30 June 2026 and closed at $415.38 on 16 September 2026. Inside that fall they dropped 7.8% on 28 July and 8.4% on 29 July to $436.45, then rose 15.0% on 30 July; fell 5.1% on 14 August, the session after the Q3 print; and fell 7.1% on 14 September.
C34factmedium confidence
The analyst panel's fiscal 2027 estimates stood at $46.75B of revenue and $18.71 of earnings a share on 27 September 2026, against $46.74B and $18.67 on 17 September, while the price rose 16.8% over the same days after falling 11.7% in the nine before. Forty-three of 55 rate the shares a buy, twelve a hold and none a sell.
sourceResearch pack frozen at content/AMAT/research-pack.jsonprimaryQ3 fiscal 2026 results release (8-K Exhibit 99.1)primary
against this
- The fiscal 2027 revenue figure rests on 23 estimates and requires growth of about 36% on a fiscal 2026 that Applied's own guidance already puts at about 21% growth - two consecutive years of acceleration in a business whose eight-year compound revenue growth rate to fiscal 2025 was 7.9% with one year of decline.
- A panel that barely moved through an 11.7% fall and the 16.8% rise that followed is as consistent with estimates that have not yet been revised as with estimates nobody thinks need revising. The next scheduled occasion to move them is the Q4 print on 12 November 2026.
- 2026-09-27editedRe-read from the refreshed research pack of 27 September 2026: fiscal 2027 estimates edged up to $46.75B and $18.71 while the price rose 16.8%; the rating split is unchanged.
C10facthigh confidence
Free cash flow for the first nine months of fiscal 2026 was $3,580M against $3,655M a year earlier - 2.1% lower on revenue 11.4% higher. Operating cash flow was $5,568M against $5,130M and capital expenditure $1,988M against $1,475M.
against this
- Applied reports a record $3,037M of operating cash flow in Q3 alone, and $2,330M of non-GAAP free cash flow in the quarter against $2,050M a year earlier - so the nine-month shortfall was made in the first half and the quarter itself converted well.
- Capital expenditure is rising deliberately: management says fiscal 2026 will be a higher-than-normal capital spending year and that capital spending will fall as a share of revenue in 2027.
C08facthigh confidence
The effective tax rate for the first nine months of fiscal 2026 was 12.9% against 27.2% a year earlier, and 12.7% against 30.6% in Q3 alone. Applied attributes the fall to a remeasurement of deferred tax assets from new Singapore tax incentive agreements and to a valuation allowance recognised in fiscal 2025 against corporate alternative minimum tax credits.
against this
- Part of the fall is a prior-year effect rather than a current-year benefit: the $410M alternative minimum tax valuation allowance sat in fiscal 2025 and made that base rate unusually high.
- The One Big Beautiful Bill Act raised the CHIPS Act investment tax credit from 25% to 35% for qualifying property placed in service after 31 December 2025 and allows immediate expensing of domestic research costs, so part of the lower rate is enacted law rather than a one-off.
How we read the multiple
Buyers pay about 41.6 times last year's profit, against its usual 18.7 times over six years. Its spare cash is only 1.5% of the price a year, against a normal 5.4%. Rivals cost more on profit, but not on cash.
On analysts' forecasts the price looks lower, but only if:
- Sales this year reach about $34.3B, the company's own guide.
- Sales then jump to about $46.7B in fiscal 2027.
- Then today's price is about 26 times that year's profit: fair only if the boom proves permanent.
Against its own history. Far dearer than its own normal on profit and on cash, while the business is also at its peak: peak prices for peak profit.
The evidence under this - 5 claims
C29facthigh confidence
At $485.00, the 25 September 2026 close, the shares cost 41.6 times trailing earnings against a six-year median of 18.7 times, 12.5 times sales against 4.8, and 33.9 times enterprise value to cash profit against 15.1. The free cash flow yield is 1.5% against a six-year median of 5.4%. The market value is about $384.9B.
sourceResearch pack frozen at content/AMAT/research-pack.jsonprimaryForm 10-Q for the quarter ended July 26, 2026primaryQ4 and fiscal year 2025 results release (8-K Exhibit 99.1)primary
against this
- The six-year median spans fiscal years in which revenue grew 2.5% and 4.4% and the operating margin sat near 29%; the business guided for Q4 fiscal 2026 is growing 50.7% at a 33.7% operating margin, so the two periods are not the same company at the same point in its cycle.
- Applied's filed competitor cohort trades higher on every earnings and sales multiple, and the whole cohort's earnings multiple has moved with Applied's in both directions - down over the nine days to 16 September and up by almost exactly the same proportion in the seven sessions to 25 September - so most of each repricing is the trade's rather than the company's.
- The multiple is struck on GAAP earnings that are themselves flattered this year: on Applied's own adjusted definition, trailing adjusted earnings of $10.91 a share, the trailing multiple is 44.5 times rather than 41.6.
- 2026-09-27editedRe-struck at the 25 September 2026 close of $485.00 after a 16.8% rise from $415.38; every multiple, the cash yield and the market value re-read from the refreshed research pack, the six-year medians unchanged.
C35estimatemedium confidence
Applied's own guidance implies fiscal 2026 revenue of about $34.29B, growth of 20.9%, and non-GAAP earnings of about $12.76 a share - so the shares cost about 38.0 times the year the company has already guided and about 25.9 times the fiscal 2027 consensus.
derivedNine-month revenue of $24,037M plus the $10,250M midpoint of the Q4 guide gives $34,287M, against fiscal 2025's $28,368M. Non-GAAP diluted earnings per share of $2.38 in Q1, $2.86 in Q2 and $3.50 in Q3 plus the $4.02 guide midpoint gives $12.76. At $485.00, the 25 September 2026 close, that is 38.0 times; against the pack's fiscal 2027 consensus of $18.71 it is 25.9 times.
against this
- The Q4 guide has been beaten in each of the last eight quarters, so $12.76 is more likely a floor than a midpoint, and a beat lowers the multiple.
- The fiscal 2027 figure is a vendor consensus struck on the adjusted definition and carries no contracted order book behind it; the only equipment backlog anyone outside can check is one quarter of the guided shipment rate.
- 2026-09-27editedRe-struck at the 25 September 2026 close of $485.00 and the refreshed fiscal 2027 consensus of $18.71; the guidance arithmetic is unchanged.
C34factmedium confidence
The analyst panel's fiscal 2027 estimates stood at $46.75B of revenue and $18.71 of earnings a share on 27 September 2026, against $46.74B and $18.67 on 17 September, while the price rose 16.8% over the same days after falling 11.7% in the nine before. Forty-three of 55 rate the shares a buy, twelve a hold and none a sell.
sourceResearch pack frozen at content/AMAT/research-pack.jsonprimaryQ3 fiscal 2026 results release (8-K Exhibit 99.1)primary
against this
- The fiscal 2027 revenue figure rests on 23 estimates and requires growth of about 36% on a fiscal 2026 that Applied's own guidance already puts at about 21% growth - two consecutive years of acceleration in a business whose eight-year compound revenue growth rate to fiscal 2025 was 7.9% with one year of decline.
- A panel that barely moved through an 11.7% fall and the 16.8% rise that followed is as consistent with estimates that have not yet been revised as with estimates nobody thinks need revising. The next scheduled occasion to move them is the Q4 print on 12 November 2026.
- 2026-09-27editedRe-read from the refreshed research pack of 27 September 2026: fiscal 2027 estimates edged up to $46.75B and $18.71 while the price rose 16.8%; the rating split is unchanged.
C30factmedium confidence
Applied's trailing price-to-earnings multiple is the lowest in its filed competitor cohort.
against this
- Applied is also the slowest-growing member of that cohort over the trailing twelve months and carries its lowest gross margin, so the discount is consistent with what the cohort's own figures say about the business rather than being unexplained.
- The whole cohort re-prices with Applied in both directions: at the 16 and the 25 September closes alike Applied sat at about three quarters of the cohort's median earnings multiple, just above the threshold below which a cohort may move a valuation score at all.
- 2026-09-27editedRe-read against the refreshed cohort at the 25 September 2026 close: still the lowest earnings multiple of the four, at about three quarters of the cohort median as before, because the cohort rose with Applied.
C31factmedium confidence
On price to free cash flow Applied is not the cheapest of its filed competitor cohort - it ranks third of four, and sits above the cohort median. Its own free cash flow is the filed figure; the three peers' are the vendor's.
sourceResearch pack frozen at content/AMAT/research-pack.jsonprimaryForm 10-Q for the quarter ended July 26, 2026primary
- 2026-09-27editedRe-read against the refreshed cohort at the 25 September 2026 close: still third of four on price to free cash flow and above the median; every other ranking unchanged.
Priced against its rivals
The competitors its own annual report names, each confirmed against the rival's filing. Measured on price for each $1 of yearly profit, cheapest first:
| Ticker | Company | price for each $1 of yearly profit |
|---|---|---|
| AMAT | Applied Materials | 41.6× |
| KLAC | KLA | 51.0× |
| LRCX | Lam Research | 54.4× |
| ONTO | Onto Innovation | 107.3× |
| ACMR | ACM Research not in the median | 34.4× |
The middle of the other 3 is 54.4. ACM Research, Inc. competes with it in one product line inside a much bigger company, so its price says little about this business and it is not counted in the middle. Applied Materials, Inc. is cheapest of 4.
Rivals' figures come from a data provider, so read the spread of the group rather than any single pair.
The cheapest of its filed rivals on profit but not on cash, which is exactly where this thesis says Applied's profit and cash part company.
Also checked and set aside: ASML Holding (a substitute, not the same product).
Private or foreign rivals that cannot be priced: Tokyo Electron Limited, NAURA Technology Group Co., Ltd., ASM International N.V., Hitachi High-Tech, SCREEN Holdings, SEMES and Kokusai Semiconductor Equipment.
Where we disagree with the market
The market believes
Applied is the broadest way to own the AI build-out, and the fall since June has made a very good business cheap again.
We believe
The business is stronger, but its reported profit is flattered twice: by a halved tax rate and by paper gains on investments.
The usual check points the wrong way. Applied's own adjusted earnings sit below its reported ones this year, and only the cash-flow statement shows the unpaid bills.
We are wrong if November delivers the promised sales with unpaid bills falling and full-year cash above $5.70B.
What analysts say, and the evidence
Analysts positive
82%
of 40, 1 Sep
Four months earlier
80%
of 41, 1 May
The evidence under this - 4 claims
C07facthigh confidence
On Applied's own non-GAAP basis, nine-month diluted earnings per share were $8.73 against $7.25 a year earlier, growth of 20.4%. The reported GAAP figure of $9.22 is the higher of the two because the reconciliation removes $1.01 a share of unrealised gains on strategic investments.
against this
- Applied publishes the reconciliation prominently in its own release and guides Q4 on the adjusted basis, so this is disclosed rather than hidden, and the fiscal 2027 consensus is struck on the adjusted definition.
- The direction was the other way round a year earlier: nine-month fiscal 2025 GAAP earnings of $6.29 sat below non-GAAP of $7.25, because that period carried a $644M Singapore deferred-tax remeasurement and a $410M valuation allowance against alternative minimum tax credits.
C11facthigh confidence
Accounts receivable took $2,508M of cash in the first nine months of fiscal 2026 against $538M a year earlier - more than the $2,469M by which revenue grew over the same period. Inventories took a further $609M. Running the other way, contract liabilities released $698M, payables and accruals $412M and income taxes payable $462M.
against this
- Contract liabilities rose $698M, which is customers paying ahead for tools not yet delivered, and is the opposite signal to the receivable build.
- Applied's own explanation is mechanical rather than commercial: days sales outstanding rose to 77 from 72 because of higher down-payment invoices for revenue not yet recognised and because it factored fewer receivables than a year earlier. Neither is a change in the terms on which tools are sold.
C03management claimhigh confidence
Applied guided Q4 fiscal 2026 revenue to $10,250M plus or minus $500M and non-GAAP diluted earnings per share to $4.02 plus or minus $0.20. That revenue guide is 50.7% above the $6,800M of Q4 fiscal 2025.
against this
- Applied has beaten its own revenue and earnings guidance in each of the last eight reported quarters, so the guide has been conservative rather than stretched.
- Against that, management guided company gross margin flat on a 12.4% sequential revenue increase, attributing it to the cost of ramping customer service engineers and to the display business growing inside the Other line - so the guided revenue does not carry guided operating leverage with it.
C10facthigh confidence
Free cash flow for the first nine months of fiscal 2026 was $3,580M against $3,655M a year earlier - 2.1% lower on revenue 11.4% higher. Operating cash flow was $5,568M against $5,130M and capital expenditure $1,988M against $1,475M.
against this
- Applied reports a record $3,037M of operating cash flow in Q3 alone, and $2,330M of non-GAAP free cash flow in the quarter against $2,050M a year earlier - so the nine-month shortfall was made in the first half and the quarter itself converted well.
- Capital expenditure is rising deliberately: management says fiscal 2026 will be a higher-than-normal capital spending year and that capital spending will fall as a share of revenue in 2027.
What could go wrong, and how we would know
The risks
- The tax bill comes back. Applied says a new global minimum tax should materially raise its foreign taxes. Instead the rate halved, and a return would cut reported profit.
- China and export rules. China was 28% of sales under US licences that can be withdrawn, and a $253M export-rules settlement may not be the last.
- Insiders selling near the top. 44 open-market sales and no purchases in a year; the chief executive sold within days of the June high.
The evidence under this - 5 claims
C08facthigh confidence
The effective tax rate for the first nine months of fiscal 2026 was 12.9% against 27.2% a year earlier, and 12.7% against 30.6% in Q3 alone. Applied attributes the fall to a remeasurement of deferred tax assets from new Singapore tax incentive agreements and to a valuation allowance recognised in fiscal 2025 against corporate alternative minimum tax credits.
against this
- Part of the fall is a prior-year effect rather than a current-year benefit: the $410M alternative minimum tax valuation allowance sat in fiscal 2025 and made that base rate unusually high.
- The One Big Beautiful Bill Act raised the CHIPS Act investment tax credit from 25% to 35% for qualifying property placed in service after 31 December 2025 and allows immediate expensing of domestic research costs, so part of the lower rate is enacted law rather than a one-off.
C09management claimmedium confidence
Applied says the enacted global minimum tax legislation is expected to materially increase its foreign taxes beginning in the first quarter of fiscal 2026, primarily because of the regime's implementation in Singapore.
against this
The rate has fallen rather than risen in the period the company said the increase would begin, so either the Singapore incentive remeasurement is offsetting the minimum tax or the effect is still to come. The filing does not quantify either side.
C17facthigh confidence
China was $2,506M, or 28%, of Q3 fiscal 2026 revenue and 28% of the first nine months; Asia Pacific was 80% of the quarter. Applied says US export regulations have limited the market for certain of its products and services, adversely impacted revenues, and increased its exposure to foreign and Chinese domestic competition.
sourceForm 10-Q for the quarter ended July 26, 2026primaryForm 10-K for the fiscal year ended October 26, 2025primary
against this
- China revenue fell 2% year on year in Q3 fiscal 2026 while the total rose 25%, so the dependence is shrinking as a share even as the absolute figure holds. United States revenue doubled and Europe tripled in the same quarter.
- Management said on the Q3 call that it expects its China business and its wider trailing-edge business to grow in both calendar 2026 and 2027, having previously described a digestion period.
C27facthigh confidence
Applied recorded a $253M charge in the first nine months of fiscal 2026 to settle an export-controls compliance matter with the US Commerce Department's Bureau of Industry and Security, and says it continues to receive related subpoenas and requests for information.
C32factmedium confidence
Applied's insiders made 44 open-market sales and no open-market purchases in the research pack's insider window from 1 October 2025 to 27 September 2026. The chief executive sold 78,321 shares between 29 and 30 June 2026 at prices from $700.21 to $736.05, within days of the 252-trading-day high of $739.67; the chief financial officer sold 7,500 shares at $479.25 on 25 August 2026 and a director 1,000 shares at $465.00 on 8 September 2026.
against this
- The chief executive still held 1,599,873 shares after the sales, so he sold under 5% of his position.
- The filings read here do not say whether the sales were made under a pre-arranged trading plan, and the pack transcribes Form 4 without the plan footnote, so no inference about timing is available from this evidence alone.
- 2026-09-27editedRe-read from the refreshed research pack of 27 September 2026, as the claim's refresh_by required: no open-market trade filed since the 8 September director sale, and the count and the named sales are unchanged.
What we still do not know
- Who the two customers taking a third of sales are. No filing names either.
- How much of the $2.51B of unpaid bills is down payments invoiced early and how much is Applied selling fewer of its bills to banks. The filing sizes neither.
The evidence under this - 3 claims
C16facthigh confidence
Two customers were approximately 20% and 14% of revenue in the first nine months of fiscal 2026, and approximately 19% and 15% in fiscal 2025. Neither is named anywhere in the filings.
C11facthigh confidence
Accounts receivable took $2,508M of cash in the first nine months of fiscal 2026 against $538M a year earlier - more than the $2,469M by which revenue grew over the same period. Inventories took a further $609M. Running the other way, contract liabilities released $698M, payables and accruals $412M and income taxes payable $462M.
against this
- Contract liabilities rose $698M, which is customers paying ahead for tools not yet delivered, and is the opposite signal to the receivable build.
- Applied's own explanation is mechanical rather than commercial: days sales outstanding rose to 77 from 72 because of higher down-payment invoices for revenue not yet recognised and because it factored fewer receivables than a year earlier. Neither is a change in the terms on which tools are sold.
C12management claimmedium confidence
Applied says days sales outstanding rose to 77 days at 26 July 2026 from 72 a year earlier, driven by higher down-payment invoices for which revenue has not yet been recognised and by less receivable factoring than in the prior year.
against this
- Neither reason is quantified anywhere in the filing, and the two run in opposite directions as evidence: down-payment invoicing means customers are paying earlier, while less factoring means Applied chose to carry the receivable itself rather than sell it. The second is a financing decision, not a demand signal.
- Days sales outstanding of 77 is high for a company whose revenue is recognised on delivery, and it moved five days in a year in which revenue rose 11.4% - so the change is larger than growth alone accounts for.
What would change our view
- Neutral→AttractiveThe receivable build reverses and the profit is cash
It needs all of:
- ○Money owed by customers falls in the fourth quarter while sales grow again, with collection time back toward last year's 72 days.checked at the next results, due by 12 Nov
- ○Full-year cash after investment beats the $7.49B of fiscal 2024, so a record profit year is also a record cash year.checked at the next results, due by 12 Nov
- Neutral→AttractiveThe price stops assuming the step up is permanent
It needs all of:
- ○The shares cost no more than the company's own six-year normal of 18.7 times last year's profit, through the price falling or profit rising.about $218.02 today, 55% below the last close
- ○Orders on hand at the year end hold at or above October 2025's $15.0B, so the cheaper shares do not mean the cycle has turned.checked at the next results, due by 12 Nov
We would also be wrong if
- The tax rate returns above 25% and adjusted earnings per share still grow.
- Applied publishes signed orders covering several years at its October investor meeting.
What is coming
- 12 November 2026 Q4 and full-year fiscal 2026 results: Whether receivables reverse and full-year free cash flow beats fiscal 2025, what the Q4 tax rate is, and whether the fiscal 2027 outlook rests on orders.
Every dated event ahead
- 12 November 2026 Q4 and full-year fiscal 2026 results: Whether receivables reverse and full-year free cash flow beats fiscal 2025, what the Q4 tax rate is, and whether the fiscal 2027 outlook rests on orders.
- December 2026 Fiscal 2026 annual report (10-K): Year-end backlog against $15,002M, the two large customers' shares, and whether the export-controls subpoenas have closed.
- January 2027 2027 proxy statement: What the fiscal 2026 bonus paid on, whether the pay metrics change again, and what insiders own after the 2026 sales.
- February 2027 Q1 fiscal 2027 results: Whether DRAM keeps lifting the equipment mix and management's calendar 2026 equipment growth and 2027 outlook hold.
Since we wrote this
Written
8 Sep
Price the thesis read
$485.00
25 Sep
- 26 OctNewsApplied will raise its Besi stake to about 20%A capped stake in a hybrid-bonding partner; the price is undisclosed, so the view held.
- 5 OctThesis reviewThe long case now sits under the verdictAfter the five-name pilot, the owner asked for the long case on every thesis.
- 4 OctThesis reviewOwner's checklist: revenue streams, cost of growth, management, catalystsThe owner's checklist found the method silent on who runs the company, what growth costs, where the money comes from and what is dated ahead; this pass fills those four blocks from the proxy and filings.
- 2 OctNewsBesi joins Applied's EPIC Center to co-develop chip packaging; no order or term disclosed. View heldBesi joins Applied's EPIC Center as an Innovation Partner.
- 27 SepPrice moveShares back up 16.8%, all of September's fall. View heldNo results and no filing arrived. The price is again about 42 times last year's profit, more than twice the company's own normal, and the November cash-flow test is unchanged.
- 17 SepPrice moveShares down 11.7% with nothing else moved. View heldNo results and no filing arrived. The cheaper price still sits far above the company's own normal, and short sellers added 31.5% at the end of August.
- 8 SepThesis writtenNeutral, medium convictionEvery operating number was at a record, but nine-month cash fell while earnings per share rose 47%, mostly on tax and investment gains.
Also checked 6 times with nothing new to act on.
Sources 16
Where this came from
Sources - 16
Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.
- S01primarycompany filing2025-12-12the business description and the list of process steps in each segment, the Competition section that names nobody, backlog of $15,002M at 26 October 2025 with its segment split and its 12-month conversion note, customer concentration of approximately 19% and 15% in fiscal 2025, the export-control and customer-concentration risk factors, the segment note explaining that Display sits in Corporate and Other, and the fiscal 2025 statementsbacksC01C13C16C17C21C36C44C47C50C51
- S02primarycompany filing2026-08-20the nine-month income statement and cash flow statement, the working-capital components including the $2,508M receivable build, the effective tax rate note and the global-minimum-tax paragraph, the stock repurchase note, days sales outstanding, the segment table including the Other operating loss, the geographic revenue split, customer concentration of approximately 20% and 14%, and the absence of any updated backlog figurebacksC02C04C05C08C09C10C11C12C14C15C16C17C25C27C29C31C39C46C50
- S03primarycompany filing2026-08-13the Q4 fiscal 2026 revenue and earnings guidance, the full GAAP-to-non-GAAP reconciliation showing nine-month adjusted earnings below reported earnings, the segment gross margins, the 200-millimetre reclassification and corporate-cost reallocation note, the six new systems, the EPIC Center engagements and the Singapore campusbacksC02C03C07C25C26C27C34C37C41
- S04primarycompany filing2025-11-13the fiscal 2025 full-year figures, fiscal 2025 free cash flow of $5,698M against $7,487M, and the Q1 fiscal 2026 guidance of $6,850M and $2.18 that the current quarterly guide should be read againstbacksC29C36
- S05primarytranscript2026-08-13management's answers on the calendar 2026 growth path, the 8-quarter customer forecast, the refusal to commit to a systems growth number, the statement that doubled capacity is not a revenue forecast, the flat gross margin guide and its ramp-cost explanation, and the advanced packaging, services and process-control growth figures that appear in no filing; also 28 analyst turns from 10 analysts, which is a separate origin from the answersbacksC28C38
- S06primarycompany filing2026-08-07a competitor's own statement of the qualification lock-in that is Applied's moat, its naming of Applied Materials as its primary competitor in deposition and among its primary competitors in etch, and its own China revenue share of 34%backsC19C20C44
- S07primarycompany filing2026-02named mainland China equipment competitors - NAURA Technology Group and Suzhou Jingtuo Semiconductor Technology - the statement that local entrants are appearing across multiple product lines, its naming of Applied Materials for deposition and track products, and its description of China's state-led supply-chain programmebacksC18C44
- S08primarycompany filing2026-04-16a customer's own filed capital plan - US$40,895M spent in 2025 and US$52 billion to US$56 billion expected in 2026 - and its annual capacity of more than 17 million 12-inch equivalent wafers against approximately 17 million a year earlierbacksC22C23C43
- S09primarycompany filing2026-06-25the memory side of the same customer capital plan - approximately $27 billion estimated for 2026 net of government incentives - and the $22 billion of customer deposits and financial commitments behind Micron's own strategic customer agreementsbacksC24C43
- S10primaryvendor data2026-09-27Research pack frozen at content/AMAT/research-pack.jsoncontent/AMAT/research-pack.jsonthe market tier - price, the multiple series against six-year medians, the analyst panel and its fiscal 2027 estimates, the 252-day return and drawdown, the measured reaction to the Q3 print, FINRA short interest, Form 4 insider transcription, the theme co-movement series - and the filed competitor cohort's multiplesbacksC29C30C31C32C33C34C40C42C45
- S11primarycompany filing2026-08-06the segment split used to set the cohort perimeter - Semiconductor Process Control at $12,244.7M of $13,579.2M - its description of the inspection and metrology products that overlap Applied's, and Taiwan Semiconductor as its only 10%-plus customer in each of three yearsread, but no claim rests on it
- S12primarycompany filing2026-02-24the third cohort member's own description of what it sells, and the risk factor disclosing that part of its metrology is integrated into other suppliers' process tools rather than sold against themread, but no claim rests on it
- S13primarycompany filing2026-05-14the middle point of the guidance path - the 'more than 30 percent' calendar 2026 semiconductor equipment growth statement raised again in August, and the quarter in which reported earnings per share of $3.51 first exceeded the adjusted $2.86backsC28
- S14primarycompany filing2026-01-28beneficial ownership of directors, officers and 5% holders as of December 31, 2025, the fiscal 2025 bonus hurdle, scorecard weights and payouts, the PSU metrics and the switch from operating margin to economic profit, the 2020 value-creation awards, the CEO's fiscal 2025 pay and the director biographiesbacksC47C48C49
- S15primarycompany filing2026-10-26the agreement to take its Besi holding to about 20%, subject to the HSR waiting period
would own approximately 20% of the outstanding shares of the common stock of Besi
backsC53 - S16primarycompany release2026-10-26the stated reason, no intention to go above 20% and no board seat
Applied currently has no intention to increase its investment in Besi beyond approximately 20 percent
backsC53