Applied Materials (AMAT)

Largest semiconductor-equipment maker — broadest fab-tool portfolio

AI exposure 30% — derived from reported segment revenue, not asserted.

Where it sits

Silicon Layer → Semiconductor Equipment · figures rebased to Q3 FY2026, reported 2026-08-13

Deposition, etch, CMP, ion implant and epi systems (foundry/logic 67%, DRAM 26%, flash 7%) leads 2 businesses in this sub-tier that together are 96.7% of revenue, so Semiconductor Equipment is effectively the whole company rather than one leg of it.

Reported segments

• Semiconductor Systems — 77.2% of revenue
• Applied Global Services (AGS) — 19.5% of revenue
• Display & Adjacent — 3.2% of revenue

Applied Materials ($9.115B Q3 FY2026, +25% YoY and +15% sequential - the fastest sequential growth in company history; Q4 guided $10.25B +/- $0.5B, roughly +51%). Q3 mix: Semiconductor Systems 77.2% ($7.04B at a 37.7% operating margin; foundry/logic 67%, DRAM 26%, flash 7%) = primary B1 Semiconductor Equipment - deposition, etch, CMP, ion implant, epi; Applied Global Services 19.5% ($1.78B at 30.1%) = recurring service and parts on the installed base; Display and adjacent 3.2% ($294M) off-map. Number one process equipment provider in DRAM as HBM scales; advanced packaging guided to grow more…

How the 30% is built

• Semiconductor Systems — 77.2% of revenue × 35% AI-driven (estimate). DRAM is 26% of the segment as HBM scales and advanced packaging grows more than 70% in calendar 2026, but ICAPS and trailing-edge demand is growing too, so well under half the segment is AI-driven
• Applied Global Services (AGS) — 19.5% of revenue × 15% AI-driven (estimate). Service and parts follow the installed base, which is far broader than its leading-edge slice
• Display & Adjacent — 3.2% of revenue × 0% AI-driven (estimate). OLED and LCD manufacturing equipment — no AI linkage

Investment read

Moat. Broadest fab-tool portfolio (deposition, etch, CMP, ion implant, inspection) plus an installed-base service annuity. Process recipes qualify to specific tools, so position is re-won at node transitions rather than re-bid mid-node; Q3 FY2026 put Semiconductor Systems at a 37.7% operating margin and services at 30.1%. Applied is the number one process equipment provider in DRAM as HBM scales, and advanced packaging - where it expects more than 70% growth in calendar 2026, with panel-level packaging going mainstream in 2027 - is the fastest-growing part of the process.

Bottleneck / pricing power. Strong pricing power across multiple tool categories plus the service annuity, evidenced by a 50.4% non-GAAP gross margin in Q3 FY2026, up 1.5pp, at a 34.0% operating margin, up 3.3pp. The ceiling showed in the same print: Q4 gross margin is guided flat at about 50.4%, because doubling manufacturing capacity by 2028 carries ramp, hiring and training costs that arrive before the revenue does.

Role in the AI stack. The broad fab-equipment layer — materials engineering across the process.

Connected companies

• Taiwan Semiconductor (TSM) — AMAT supplies: deposition/CMP/ion implant
• Samsung Electronics (SSNLF) — AMAT supplies: materials engineering tools
• Intel (INTC) — AMAT supplies: deposition/etch equipment for Intel fabs
• Lam Research (LRCX) — AMAT competes with: Deposition + etch overlap — AMAT leads deposition, LRCX leads etch
• KLA Corporation (KLAC) — AMAT competes with: Process-control/inspection overlap — KLA dominant (~74%), AMAT the distant #2 (~10%)
• ASML Holding (ASML) — AMAT competes with: Broad WFE peers but largely complementary — litho (ASML) vs deposition/etch (AMAT) are not substitutable; overlap only in WFE budget share and minor e-beam/metrology
• Onto Innovation (ONTO) — AMAT competes with: marginal metrology/inspection overlap — Onto specialist vs AMAT's smaller process-control line (AMAT is mostly deposition/etch)
• Sandisk (SNDK) — AMAT supplies: semiconductor fab equipment (deposition/etch) for NAND fabrication (Kioxia JV fabs)
• GlobalFoundries (GFS) — AMAT supplies: semiconductor manufacturing equipment for GlobalFoundries fabs
• Ultra Clean Holdings (UCTT) — AMAT is supplied by: Critical UHP subsystems/modules built into Applied Materials fab tools — AMAT is a top-2 customer (~part of 58.7% top-2 concentration)
• MP Materials (MP) — AMAT is supplied by: Rare-earth oxides underlie AMAT chamber-part coatings, but MP does not commercially supply yttria and no MP->AMAT link is evidenced
• Lynas Rare Earths (LYC) — AMAT is supplied by: yttria and rare-earth oxides for plasma-facing chamber components
• Alcoa (AA) — AMAT is supplied by: high-purity primary aluminum feedstock for machined chamber bodies and tool frames
• Tower Semiconductor (TSEM) — AMAT supplies: Semiconductor manufacturing equipment for Tower's 200mm and 300mm specialty fabs

Others in Semiconductor Equipment

• ASML Holding (ASML)
• Lam Research (LRCX)
• KLA Corporation (KLAC)
• Teradyne (TER)
• Onto Innovation (ONTO)
• Ultra Clean Holdings (UCTT)

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