Applied Materials (AMAT) Q1 FY26 earnings call: guidance and Q&A

Asked about Applied's view on 2026 WFE growth compared to peers' estimates (low teens to 22%) and drivers for share growth, given Applied's expectation of >20% growth in its semi equipment business.

Gary Dickerson reiterated the >20% growth for Applied's semi equipment business in CY26, driven by AI's impact on leading-edge foundry/logic, DRAM (including HBM), and advanced packaging. He emphasized Applied's #1 position and share gain potential in these fastest-growing segments, while NAND and ICAPS are expected to be flatter or slower growing.

“We expect to grow our semi equipment business more than 20% this calendar year and our #1 position in these fast growing markets creates a great setup for Applied in '27 and for the next several years.”

asked by Christopher Muse · answered by Gary Dickerson

Inquired about gross margin expectations in the upcycle, considering rising volumes, value-based pricing, and improved customer margins.

Gary Dickerson highlighted 700 bps gross margin improvement since he became CEO, reaching a 25-year high. He attributed future margin growth to inflection-focused innovation in high-value segments (foundry/logic, DRAM, packaging) and the EPIC platform for co-innovation and value sharing. Brice Hill added that the equipment business gross margin is currently over 54% and expects continued improvements as the portfolio shifts to more valuable products.

“We made progress in gross margins, up 700 basis points since I became CEO, and we're now at the highest level in 25 years, and I strongly believe we're driving the right actions to sustainably increase the value we create for customers and for Applied to share in the value we are creating.”

asked by Christopher Muse · answered by Gary Dickerson

Asked about the evolution of the view on China and global ICAPS, noting a shift from a consensus "down" view to Applied's "flattish" expectation for 2026.

Gary Dickerson confirmed that while they previously expected China and ICAPS WFE to be down slightly, they now see it as flattish overall for CY26, both globally and in China. He reiterated the long-term mid-to-high single-digit growth for ICAPS, significantly lower than AI-driven markets.

“We now see ICAPS, as I just mentioned, flattish overall, both globally and in China, and we continue to believe that in the longer term, that the ICAPS semiconductor market will grow in mid- to high single digits, which is significantly lower than what we see for markets being driven by AI data center growth.”

asked by Sreekrishnan Sankarnarayanan · answered by Gary Dickerson

Followed up on the >20% equipment growth, asking if the implied Q2-Q4 run rate of ~$6.5B (or higher) was correct, and if cleanroom space was the primary limit, suggesting even stronger growth into 2027 if not for this constraint.

Brice Hill confirmed the math was in the ballpark and that the second half would be higher, but they are still working on the exact schedule. He stated that growth is "metered by cleanroom" in leading-edge and DRAM, and that while customers have increased expectations for this year, they have largely exhausted available space. He noted many new factories are scheduled for 2027, suggesting continued capacity additions. Gary Dickerson added that AI demand is a "significant wave" lasting a long time, and 2027 is expected to be another strong year.

“It's certainly metered by cleanroom this year in leading edge and DRAM. And so that is putting a cap on what can be done this year... But I think the customers have exhausted most of that space. Now for investors, all of our customers, I looked at the schedule. There's a number of factories coming online in '27.”

asked by Stacy Rasgon · answered by Brice Hill

Asked if the traditional 15% WFE intensity of the semiconductor industry still holds, given the accelerated $1 trillion market size and AI-driven growth, and if this shift positions Applied for higher gross margins.

Gary Dickerson stated that WFE intensity has grown to around 15% but emphasized that the longer-term composition model is changing due to divergence in end-market growth rates. He noted that leading-edge foundry/logic and DRAM will be significantly larger parts of the total mix than ICAPS. He expressed high confidence in sustaining margin growth by focusing on high-value solutions in these fastest-growing AI-enabling segments.

“WFE intensity has grown to around 15%. But really, for me, when I'm thinking about Applied Materials and what I'm driving is to focus on winning every segment, but to really make sure we outperform in the largest and fastest-growing markets... I have very high confidence that we'll be able to sustain that margin growth going forward.”

asked by Mark Lipacis · answered by Gary Dickerson

Inquired about the underlying growth of AGS given the 200mm business reclassification, and the implications of doubling system manufacturing capacity for potential system sales.

Brice Hill clarified that AGS grew 15% YoY in Q1 and is guided for ~13% YoY in Q2, expecting low double-digit growth going forward, supported by its 55,000-tool installed base and new products like AIx. Regarding manufacturing capacity, he stated they have "significant upside" and can "comfortably scale much higher," with prepositioned space available for further build-out, emphasizing supply chain collaboration.

“What we're signaling for AGS along the lines of your question is that it should grow at low double digits or better going forward. And that's based on having a 55,000 tool installed base.”

asked by Timothy Arcuri · answered by Brice Hill

Asked what specific factors are driving the second-half acceleration in 2026, given memory cleanroom constraints, and what proportion of WFE is currently AI-driven compared to last year.

Brice Hill attributed the H2 acceleration to cleanroom availability for DRAM and leading-edge, with customers increasing expectations for this year and many new factories scheduled for 2027. He estimated that in the recent past, >20% of leading-edge wafer starts were for data centers, now surpassing PCs, and expected to surpass smartphones by 2029. He broke down data center growth as 10-20% for traditional components and 30-40% for AI-related components.

“I think it is a cleanroom. We had an inkling of this last quarter we had expected the second half to be higher based on availability of space for DRAM and leading edge... We think data center will surpass smartphones in 2029.”

asked by Vivek Arya · answered by Brice Hill

Given the strong systems business outlook, increasing customer utilization, and value-added services, asked if AGS could grow faster than its historical 11% CAGR (low teens) this calendar year, noting its current higher growth trend.

Brice Hill confirmed AGS's Q1 YoY growth of 15% and Q2 guide of ~13%, expecting low double-digit growth going forward. Gary Dickerson expressed excitement about service innovation, AIx capabilities, and the complexity of new architectures, stating he feels "very good about our growth in AGS going forward. And I think there's a really good opportunity for it to grow faster going forward."

“I feel very good about our growth in AGS going forward. And I think there's a really good opportunity for it to grow faster going forward.”

asked by Harlan Sur · answered by Gary Dickerson