Applied Materials Is the AI Boom's Silent Winner

Applied Materials (AMAT) reported its fiscal 2026 second-quarter results, revealing 11% year-over-year revenue growth to $7.91 billion. The semiconductor segment, which accounts for 75% of total revenue, grew 10.4% to $5.965 billion.

The company highlighted key partnerships with Taiwan Semiconductor Manufacturing (TSMC), Micron (MU), and SK Hynix, all of which are ramping up AI chip production. These relationships are expected to drive accelerated revenue growth for Applied Materials as its customers expand capacity.

Critically, management guided for at least 30% revenue growth in the semiconductor business for calendar 2026. This implies a significant acceleration from Q2's pace, requiring 40% to 50% growth in subsequent quarters to achieve the full-year target.

Applied Materials does not manufacture chips itself but designs the essential equipment that chipmakers use. It is the largest U.S.-based semiconductor equipment provider, positioning it as a key enabler of the AI infrastructure buildout.

The stock has more than doubled year to date, pushing its P/E ratio above 50. While this elevated valuation leaves a lower margin of safety, the company's fundamentals are strengthening.

Applied Materials maintained a net profit margin of 35.5% in Q2, meaning that revenue growth should translate into robust earnings growth. If the company delivers on its 30% guidance, the current valuation could become more reasonable as earnings catch up.

The AI supercycle is expected to last several years, and Applied Materials' equipment is critical for producing advanced chips. This could drive sustained demand beyond 2026.

However, investors should monitor execution risk: the company needs to achieve 40-50% growth in later quarters to meet its full-year target. Failure to do so could lead to a sharp correction in the stock price.