What Are Applied Materials Investors Betting On?

Applied Materials (AMAT) stock trades at 39.5 times its adjusted earnings for the past twelve months. That profit figure includes stock-based pay added back, and the resulting multiple looks steep for a company that posted 7.8% sales growth over the same period. However, the calculation shifts when looking at the profit expected in the next two years. So how much growth is already in the price of Applied Materials stock?

Holders Need A Boom Year From Applied Materials

The current price leans on a forecast for sales to grow 36.3% in a single year. The consensus forecast shows sales climbing by that amount between fiscal 2026, which ends in October, and fiscal 2027. Expected profit outpaces that top-line expansion, growing at 40.0%.

The forecast also models a wider margin. During fiscal 2025, the last reported full year, Applied Materials kept 27% of its sales as net profit. Forward estimates raise that margin to 30% for fiscal 2026 and 31% for fiscal 2027.

Based on those projections, the stock currently costs 38.7 times fiscal 2026 profit and 27.7 times fiscal 2027 profit. That fiscal 2027 multiple only becomes a reality if the company achieves both the projected sales growth and the wider margin.

What Have Applied Materials’ Latest Quarters Delivered?

Over the last four quarters, sales at Applied Materials shifted from contraction to growth. Sales fell 3.5% from a year earlier in the first of those periods and slipped 2.1% in the next. The trend then reversed with 11.4% growth, followed by a 24.8% increase in fiscal Q3 2026, the most recent quarter. Yet that acceleration remains short of the 36.3% jump forecast for fiscal 2027.

During an August 13, 2026 call, management noted that customers had sharply increased their demand for tool deliveries over the course of the year. For instance, sales of equipment for DRAM memory chips grew 52% from a year earlier in fiscal Q3 2026. The company expects this momentum to persist. Even the low end of the sales guide for fiscal Q4 2026 exceeds the record sales achieved in fiscal Q3.

Executives also expressed high confidence that 2027 will be another strong growth year, though they declined to provide guidance for the first quarter of fiscal 2027.

Applied Materials Can Ship Only What Clean Rooms Take

If Applied misses the forecast, the most likely reason is how much it can ship. The company installs its machines in clean rooms, the specialized factory spaces where chips are manufactured, and customers have faced shortages of this real estate. On the August 13 call, management stated that available clean room space will dictate shipping volumes in 2027. If chipmakers ultimately secure less space than planned, fiscal 2027 sales could fall short of the forecast.

The company could also miss the forecast on its margin. Despite higher sales, management guided for adjusted gross margin to be about flat in fiscal Q4 2026 and pointed to the costs of ramping up operations. They also expect to absorb the effect of the global minimum tax in 2027. Costs like these could leave net profit below the forecast even if the projected sales arrive.

Management presents to investors on October 13, 2026, during SEMICON West. If they deliver a fiscal 2027 sales outlook near the current forecast, it would signal that Applied Materials expects its customers to have the necessary clean room space.

If chipmakers find that space and the margin widens as expected, the valuation based on fiscal 2027 profit provides a fair picture of what Applied Materials stock costs. Conversely, if sales growth lands well short of the forecast, today’s buyers will have paid for a year the company did not deliver.

Does This Mean You Should Act On AMAT?

Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.

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