Morgan Stanley believes 2026 will be a strong year for AMAT

Overview

This is a company research and earnings call takeaways report on Applied Materials Inc. Morgan Stanley believes AMAT is entering a strong execution phase in 2026, supported by incremental 3nm wafer demand, greenfield DRAM investment activity, leading-edge logic, and advanced packaging demand, which materially lifts expectations for system shipment growth. The report reiterates AMAT as a Top Pick and maintains an Overweight rating.

Core views

The core thesis is '2026 is AMAT's year.' AMAT is not only keeping pace with peers, but also beating expectations in several areas: AprQ revenue guidance is $8.95bn, above Morgan Stanley's expectation of $8.4bn+; CY26 systems revenue growth guidance was raised from 20%+ to 30%+; Morgan Stanley expects AMAT in 2026 to outperform its WFE growth forecast by more than 10 percentage points. Looking into 2027, the report remains constructive, but argues the debate will shift to whether AMAT can continue to gain share in 1.4nm, expand beyond TSMC, and maintain its advantage in 1C/1D DRAM.

Analysis framework

The report evaluates AMAT using earnings guidance, systems revenue growth, relative WFE growth, business mix, DRAM and leading-edge logic demand, valuation multiples, and risk-reward scenarios. On valuation, it maintains a target multiple of roughly 28x CY27 EPS, at a 3-turn discount to LAM and a 5-turn discount to KLA, to reflect both the growth opportunity in DRAM and concerns about share loss in China.

Methodology notes

• Valuation methodsP/E multiple valuation

  Target price estimation based on CY27 EPS and a target P/E multiple

  Morgan Stanley uses roughly 28x CY27 EPS of $17.94 to derive the $502 target price and notes that this multiple still trades at a discount to LAM and KLA.

• industry_cycleWFE relative growth analysis

  Using wafer fab equipment spending growth as a benchmark to assess whether AMAT is outperforming the industry

  The report compares AMAT's systems shipment growth with WFE growth and expects AMAT in 2026 to outperform Morgan Stanley's 23% WFE growth forecast by more than 10 percentage points.

• risk_rewardscenario analysis

  Bull, base, and bear case target prices and probabilities

  The chart presents scenario price points such as $693, $502, and $330, and shows option-implied probabilities to assess upside and downside risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Applied Materials Inc. (AMAT.O / US.AMAT)

  Core covered name; rated Overweight and target price raised

  Strengths

  A relatively high DRAM mix, benefiting from greenfield wafer growth; positively viewed in GAA, DRAM, and Conductor Etch; CY26 system growth expectations materially revised higher.

  Weaknesses

  Process Control is still viewed as a drag, and although management is constructive, the report has not fully endorsed it; concerns about China market share loss still weigh on valuation.

  Comparison

  The report says AMAT trades at about 28x CY27 EPS, roughly a 3-turn discount to LAM and a 5-turn discount to KLA; AMAT's CY26 DRAM mix is about 31%, above LAM's 20% and KLA's 28%.

  Risks

  Market share loss at key customers such as Samsung and TSMC; tighter China export restrictions; weaker-than-expected DRAM WFE; reduced expansion targets from leading-edge logic customers.

Key data

• AprQ revenue guidance$8.95bnAbove Morgan Stanley's expectation of $8.4bn+.
• CY26 systems revenue growth guidanceRaised from 20%+ to 30%+Company guidance is above Morgan Stanley's prior expectation of 25%+.
• Morgan Stanley CY26 systems growth forecastRaised from 28.6% to 34.2%AMAT is expected to significantly outperform WFE.
• MSe WFE growth forecast23%The report says AMAT in 2026 should outperform this forecast by more than 10 percentage points.
• CY26 forecast$36.4bn / EPS $13.74Up from the prior $34.7bn / EPS $12.63.
• CY27 forecast$45.3bn / EPS $17.94Up from the prior $42.4bn / EPS $16.21.
• Target price$502.00The report reiterates Overweight.
• Current share price$440.56Chart date is 2026-05-14.
• Global revenue exposureAPAC ex Japan, Mainland China and India 40-50%；Mainland China 20-30%；North America 10-20%From the regional exposure chart; figures are ranges.

Impact & implications

For investors, the report reframes AMAT from 'can it outperform WFE in 2026' to 'by how many percentage points can it outperform?'. If greenfield DRAM investment, leading-edge logic, and advanced packaging continue to contribute more than 80% of WFE year-over-year growth, AMAT could sustain strong revenue and EPS upward revisions and earn a valuation re-rating. However, if share gains in 2027 fall short of expectations, or if risks around China/ICAPS, key customer share, and export restrictions worsen, upside could be limited.

Risks

• Further tightening of equipment and services export restrictions to China.
• AMAT losing market share at key customers such as Samsung and TSMC.
• DRAM WFE remaining weak in 2026, undermining AMAT's most important upside driver.
• Less-than-expected investment in leading-edge logic or advanced packaging.
• Process Control improvement coming in below management's comments.
• Uncertainty remains around 2027 share gains in 1.4nm, leading-edge logic beyond TSMC, and 1C/1D DRAM.

What to watch

• Whether revenue and system shipments in subsequent quarters continue to exceed guidance.
• Whether CY26 systems revenue growth can reach or exceed 30%+.
• Whether AMAT's outperformance versus WFE remains above 10 percentage points.
• The sustainability of DRAM greenfield investment, 3nm wafer growth, and advanced packaging demand.
• Share gains in Conductor Etch and the ramp speed of the Sym3 platform.
• Whether Process Control can return to growth and exceed 2021 revenue levels.
• Share performance in 2027 for 1.4nm, customers beyond TSMC, and 1C/1D DRAM.