What Are AMAT Stock Bears Missing?
Applied Materials (AMAT) runs a services business, Applied Global Services, that grew 22% from a year earlier in its latest quarter. You probably think of the company as a seller of chipmaking machines, a business that rises and falls with factory spending. The stock is down 27% over the past three months. So how large is the services business?
How Large Is Applied Materials’ Services Business?
Applied Global Services brought in a record $1.8 billion of revenue in fiscal Q3 2026. Total company revenue that quarter was $9.1 billion. So services made up about 20% of sales, which makes it a large business in its own right.
Management expects the services business to grow more than 20% in calendar 2026. Beyond that year, it targets a sustainable long-term growth rate in the mid-teens. For fiscal Q4 2026, it guided services revenue to about $1.84 billion. That would again be 22% more than a year earlier.
That three-month slide stands in sharp contrast to the broader market, as the S&P 500 gained 4.2% over the same stretch. So what are investors worried about?
What Are Applied Materials Investors Worried About?
The likely worry is a downturn in chip factory spending. The stock has fallen hard in past downturns, including market-wide ones. In the 2022 inflation shock, it dropped 53% from peak to trough. The S&P 500 fell 24% in that shock. A holder who bought near the top lost more than half of the value on paper.
At current valuation multiples, the stock offers less margin of safety against potential operational stumbles. The stock trades at 37.6 times the past year’s earnings. In other words, investors pay about 38 dollars for each dollar of annual profit. The S&P 500 trades at 22.5 times. Applied Materials’ own multiple sits near the middle of its ten-year range.
The services business answers part of that worry. Management’s target of mid-teens growth each year points to a steady business, not a boom that must be repeated. But services cover only about a fifth of revenue.
The machine business, Semiconductor Systems, brought in a record $7 billion in fiscal Q3 2026. That was up 27% from a year earlier, faster than services grew. How well services would hold up in a spending downturn is not yet known. So what would show the services business falling short?
What Would Show Applied Materials’ Services Business Falling Short?
The first sign would be services growth cooling from its current 20%-plus pace and falling well short of management’s mid-teens long-term target. The second is cost: service-related ramp expenses are already spilling over into the broader business, with management guiding total company non-GAAP gross margin flat at about 50.4% in fiscal Q4 2026. Management tied the flat guide partly to ramp costs, including hiring a lot of customer service engineers. If that hiring keeps pressing on the company’s margin, the company’s revenue growth would generate less profit than the headline numbers suggest.
The services business is a large part of Applied Materials, and management expects it to keep growing at a steady pace. Historically, growth in the services division alone has not fully insulated the stock price from broader semiconductor equipment spending cycles. The next chance to hear more is the investor breakfast at SEMICON West on Oct. 13, 2026. A cut to the mid-teens growth target there would weaken the case.
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