What Are Applied Materials Stock Investors Overlooking?
Applied Materials (AMAT) sold a record $7 billion of chipmaking tools in fiscal Q3 2026. That was about 77% of its $9.1 billion in revenue for the quarter. When you own the stock, you mostly own those tool sales. A record that large is easy to read as the new normal. So what might Applied Materials investors be overlooking about those tool sales?
Applied Materials’ Tool Sales Depend On Clean Room Space
Investors can overlook how much Applied Materials’ tool sales depend on space its customers control. Chipmakers run these tools inside clean rooms, the sealed, dust-free floors of a chip factory. Management said in the fiscal Q3 2026 call that clean room availability will determine what the industry can ship in 2027.
Take a made-up chipmaker whose clean room is already full of tools. It cannot buy another tool until it builds more space or frees some up.
In 2026, customers found new ways around those space limits, management said. As a result, they sharply raised their demand for tool deliveries. Sales of tools for DRAM, a type of memory chip, grew 52% from a year earlier to a record. That growth includes packaging tools for high-bandwidth memory. You can see how quickly that demand came in Applied Materials’ own sales.
How Quickly Did Applied Materials’ Sales Turn Around?
Applied Materials’ sales turned around within a year. In the oldest of the last four quarters, revenue was 3.5% lower than a year earlier. By fiscal Q3 2026, revenue was 24.8% higher than a year earlier. Tool sales grew faster still, rising 27% from a year earlier.
Revenue fell from a year earlier in two of those four quarters, so this growth is recent. Even so, Applied Materials is building for more demand. Management said the company can double its quarterly tool output from current levels by 2028. Management also said that is a capacity plan, not a revenue forecast for 2028.
Management said Applied Materials’ capital spending, the money it puts into buildings and equipment, will stay higher than normal in 2027. That spending will still fall as a share of revenue. For fiscal Q4 2026, the company expects tool sales of around $7.9 billion, above the fiscal Q3 record. The company gave no figure for fiscal Q1 2027, though management said it expects that quarter to grow from fiscal Q4. Management has given no growth figure for 2027, yet the price you pay likely assumes the pace will last.
What Are You Paying For Applied Materials Stock?
The stock trades at 43.9 times its earnings over the last twelve months. That ratio, the P/E, is the price you pay for each dollar of yearly profit. Applied Materials’ P/E is about double the S&P 500’s 21.9.
The stock has fallen 29% over the last three months. Even so, its P/E is still in the top tenth of its readings over the last ten years.
The best evidence that the pace can last comes from customers. The largest ones now give Applied Materials rolling 8-quarter forecasts, management said. Customers also announced more than 10 new chip factory projects in a single quarter, management said. With that longer view, management said it has high confidence that 2027 will be another strong growth year.
Applied Materials holders have reason for some worry about these tool sales, but not for alarm. The worry would grow if clean room space held back what the industry can ship in 2027. Management’s investor breakfast is on October 13, 2026. A firm growth figure for 2027 tool sales would ease this worry, and no figure would keep it open.
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