AMAT: Capex upcycle arrives, equipment stocks enter spring!---

Applied Materials (AMAT) released Q1 FY26 (to Jan 2026) after the U.S. close on Feb 13 Beijing time. Key takeaways below.

1) Headline numbers: $Applied Materials(AMAT.US) revenue was $7.0bn this quarter, -2% YoY, in line with consensus ($7.0bn), pressured by a tough comp in semi equipment a year ago. Notably, DRAM and Services both delivered double-digit growth.

GPM was 49%, up 100bps QoQ, beating the Street (48.4%). The YoY mix uplift was driven by a higher contribution from semi systems, which carry above-company-average margins.

2) Business breakdown: AMAT’s biz. comprises Semi Systems and Services, with Semi Systems the largest at 70%+ of revenue. Services contributes the remainder.

Within Semi Systems: 1) Logic revenue was $3.2bn, -1% QoQ, still soft as capex outside TSMC, including Intel, remains conservative. 2) DRAM revenue was $1.75bn, +28% QoQ, marking a second straight quarter of double-digit QoQ growth and signaling the strongest pull from memory.

3) OpEx: Operating expenses increased to about $1.6bn, including a $250mn settlement charge this quarter. Core OpEx-wise, R&D edged up to $930mn, while G&A declined.

The company announced ~4% workforce reduction in late Oct 2025. Completion is ~3% so far, and the core OpEx ratio fell to 19.1% this quarter.

[On Feb 11, 2026, Applied Materials announced a settlement with the U.S. Dept. of Commerce’s Bureau of Industry and Security (BIS). BIS had alleged certain shipments to customers in China between Nov 2020 and Jul 2022 did not comply with the Export Administration Regulations (EAR); the settlement resolves those allegations.]

4) Next-quarter guide: AMAT guides Q2 FY26 revenue to $7.15–8.15bn, well above consensus ($7.1bn); the midpoint implies +9% QoQ.

Non-GAAP EPS is guided to $2.44–2.84, also comfortably ahead of the Street ($2.25).

Dolphin Research view: Capex supercycle — equipment rally pulled forward

AMAT’s revenue and GPM were uneventful and broadly as expected. The YoY revenue decline reflects last year’s high semi equipment base. Double-digit growth in DRAM and Services was a clear positive.

Importantly, the company adjusted segment reporting this quarter. The 200mm systems moved from Applied Global Services into Semi Systems. Display was folded into ‘Other’, further highlighting core operations.

The real highlight is guidance, not the reported quarter. The company expects Q2 revenue of $7.15–8.15bn, midpoint +9% QoQ and above consensus ($7.1bn). It also guides EPS to $2.44–2.84, ahead of the Street ($2.25).

The company had previously indicated a ‘low-then-high’ cadence for FY26, so H1 expectations were muted. The new guide clearly tops expectations, driven chiefly by rising memory-related equipment demand with two straight quarters of double-digit QoQ gains.

Beyond the quarter, the market is focused on several areas. We highlight the following.

a) Foundry/wafer fab capex: With AI and memory demand as tailwinds, multiple leading fabs raised capex outlooks, the primary driver of the stock’s move higher.

Specifically: 1) TSMC raised 2026 capex to $52–56bn, up by more than $10bn YoY. 2) Micron lifted 2026 capex to $20bn. 3) Samsung plans to step up memory capex following HBM qualifications.

In aggregate, global core fab capex in 2026 should grow 20%+, with the main increments from TSMC’s advanced nodes and memory makers’ expansions.

b) Rising memory mix: memory is a bit over 30% of Semi Systems. With memory capex accelerating, memory’s revenue mix is trending higher.

AMAT is structurally stronger in DRAM, as DRAM/HBM manufacturing relies more on deposition, CMP, and advanced packaging. As a result, its memory exposure skews to DRAM rather than NAND.

By contrast, Lam Research dominates high-aspect-ratio etch in 3D NAND, where layer-count increases (e.g., 232L, 300L+) drive non-linear etch tool intensity. In an upcycle with NAND expansions, Lam’s operating leverage is greater.

AMAT’s tilt toward DRAM supports steadier growth. As memory makers keep hiking capex, AMAT’s memory mix should continue to rise.

AMAT’s current market cap is $260.3bn, implying about 24x PE on FY27 post-tax core OP (assuming a 2-year revenue CAGR of 15%, GPM 49.7%, and a 14% tax rate). Historically, the stock has mostly traded in the 18–30x PE band, placing today near the midpoint.

Versus peers ASML (~33x) and Lam Research (~34x), AMAT screens cheaper. In a sustained semi capex upcycle, its multiple could drift toward the upper end of its historical range.

Overall, Q1 print was mixed, but guidance was clearly better than expected. Given the ‘low-then-high’ full-year cadence, investors should look for a stronger H2 and 2027.

The semi industry has entered an expansion phase with at least a 2+ year horizon. 2026 capex should be driven by AI compute and memory expansions, while 2027 should benefit from the 2nm node transition and the next wave of edge AI.

We expect AMAT’s momentum to accelerate into H2 FY26, and the stock could break higher as the capex upcycle plays through.

Below is Dolphin Research’s detailed take on AMAT’s results:

I. Key operating metrics: guidance well above expectations

1.1 Revenue

AMAT delivered Q1 FY26 revenue of $7.0bn, -2.1% YoY, in line with consensus ($7.0bn), reflecting the high prior-year base in Semi Systems.

The headline may look soft, but the mix tells a better story: both DRAM and Services posted double-digit growth this quarter.

Management guides next-quarter revenue to $7.15–8.15bn, with the midpoint +9% QoQ and above the Street ($7.1bn).

Given the prior ‘low-then-high’ setup, the Street had baked in a muted Q2. The guide implies DRAM-related tool demand is outpacing prior expectations.

1.2 Gross margin

AMAT posted Q1 FY26 gross profit of $3.44bn, -1.7% YoY. GPM was 49%, up 100bps QoQ and above consensus (48.4%), driven by a higher mix of semi systems with superior margins.

For next quarter, management guides GPM to 49.3%. Mix tailwinds from DRAM and related demand should continue to help.

1.3 OpEx and profit

Q1 FY26 OpEx was $1.6bn, +21% YoY.

The increase mainly reflects a $250mn settlement charge this quarter.

[On Feb 11, 2026, Applied Materials announced a settlement with the U.S. Dept. of Commerce’s Bureau of Industry and Security (BIS). BIS had alleged certain shipments to customers in China between Nov 2020 and Jul 2022 did not comply with the EAR; the settlement resolves those allegations.]

Within core OpEx:

1) R&D was $930mn, +8% YoY.

2) S&M was $220mn, +8% YoY.

3) G&A was $190mn, -26% YoY, reflecting the ~4% workforce reduction plan announced in late Oct 2025.

Core operating profit was $2.1bn, -3.6% YoY, with a 29.9% OPM. Profit benefited from the GPM improvement.

II. Segment trends: in the capex supercycle, memory is compounding QoQ

AMAT revised its reporting structure this quarter. The 200mm systems moved from Services into Semi Systems, and Display was consolidated into ‘Other’.

By segment, Semi Systems remains the largest at 73% of revenue, spanning deposition, etch, CMP, etc., across logic and memory wafer fab. The remainder is largely Applied Global Services (maintenance, upgrades, etc.) at ~22%.

2.1 Semi Systems

Semi Systems revenue was $5.14bn in Q1 FY26, +5.4% QoQ, in line with consensus ($5.16bn), driven by recovering DRAM demand.

The business can be viewed by end-use: logic vs. memory. 1) Logic revenue was $3.19bn, -1% QoQ, still the largest sub-segment. 2) DRAM revenue was $1.75bn, +28% QoQ.

DRAM has now posted two consecutive quarters of double-digit QoQ growth, supported by expansion plans from Micron, Samsung, and SK Hynix for 2026. That should lift memory’s mix further.

Given AMAT’s tools serve wafer fabs directly, foundry and memory capex is the key downstream driver. With TSMC, Micron, and others raising capex (see table above), 2026 global core fab capex should remain 20%+, setting the stage for faster growth ahead.

2.2 Services

Services revenue was $1.56bn in Q1 FY26, +15% YoY, in line with consensus ($1.54bn).

The 200mm systems were reclassified out of Services into Semi Systems this quarter, leaving Services more focused on maintenance, parts consumption management, and smart Mfg. solutions (predictive maintenance, remote diagnostics).

Given the recurring nature of maintenance, volatility is low. Management expects low-teens growth ahead.

2.3 Geographic mix

China mainland and Taiwan remain the largest contributors at 30% and 25% of revenue this quarter, respectively. With Samsung and SK Hynix stepping up DRAM tool purchases, Korea’s mix rose to 21%.

Mainland China’s ~30% mix still carries uncertainty. The recent BIS settlement payment somewhat alleviates friction effects in the U.S.–China semi space.

Earlier BIS restrictions directly limited equipment exports. On Sep 29, 2025, BIS stated that any affiliate 50%+ owned, individually or in aggregate, by one or more Entity List parties would be treated as subject to the same export controls.

Following subsequent U.S.–China negotiations, BIS formally suspended this rule for one year starting Nov 10, 2025. While the specific rule is suspended, roughly 20% of shipments to China remain restricted, primarily in advanced logic, NAND, DRAM, and parts of ICAPS (IoT, comms, auto, power, sensors).

<End here>

Dolphin Research’s AMAT archives:

Dec 10, 2025 Deep Dive: Memory Is On Fire — Can the AI Capex Cycle Finally Lift AMAT?

Nov 10, 2025 Trans: AMAT (Notes): Flat H1 Next Year, Growth Back-End Loaded

Nov 10, 2025 First Take: Memory Is ‘Red-Hot’ — How Much Can AMAT Benefit?

Sep 18, 2025 Deep Dive: AMAT: AI Rallies Everywhere — When Does AI Capex Go ‘All-In’?

Risk disclosure and disclaimer: Dolphin Research Disclaimer and General Disclosures