Bernstein maintains AMAT at Outperform, raises target price to $525

Overview

This report is Bernstein's commentary on Applied Materials Inc (AMAT.US) FQ2 2026 results and FQ3 guidance. The report says quarterly performance was strong, especially in equipment sales, Foundry/Logic demand, and services, all of which were better than expected; FQ3 guidance further indicates that the semiconductor equipment upcycle is accelerating.

Core views

The core view is that AMAT is in a multi-year equipment upcycle driven by AI, wafer demand, advanced nodes, DRAM, and advanced packaging. Customers are trying to add as much equipment as possible within existing global cleanroom capacity, and major customers provide rolling eight-quarter forecasts, giving management better visibility into demand durability. The report views AMAT as one of the preferred ways to participate in the semiconductor capital equipment cycle.

Analysis framework

The report uses comparisons between results and consensus, revenue breakdowns by business and end market, regional revenue mix, management guidance, WFE growth sources, valuation multiples, and forward EPS forecasts as its main analytical framework, and rolls the valuation horizon from FY2027 to the FY2027/28 average.

Methodology notes

• 估值市盈率倍数法

  Using a ~30x P/E multiple applied to the FY2027/28 average non-GAAP EPS forecast of $17.12 yields a target price of about $525.

  The report keeps the ~30x valuation multiple unchanged, but moves the valuation base from FY2027 to the FY2027/28 average EPS and raises earnings estimates, so the target price increases from $425 to $525.

• 业绩点评实际值与一致预期对比

  Compares quarterly revenue, EPS, gross margin, segment revenue, and next-quarter guidance against market consensus.

  FQ2 revenue, EPS, gross margin, and FQ3 revenue and EPS guidance were all above market expectations, which is a key basis for the report's positive view.

Asset mapping & comparison

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

• AMAT.US

  core coverage name

  Strengths

  Strong FQ2 results and FQ3 guidance; good exposure to advanced-node Foundry/Logic, DRAM, and advanced packaging; services revenue growth; China revenue share is falling and below some peers; valuation is attractive relative to peers.

  Weaknesses

  Flash sales declined YoY, and some end markets such as DRAM were weaker than consensus; operating margin in Other including Display was negative.

  Comparison

  The report says AMAT offers lower China exposure and a cheaper valuation than peers, making it a preferred way to participate in the semiconductor equipment cycle.

  Risks

  Industry downcycle, worsening end-market mix, share loss, and geopolitical risk.

Key data

• FQ2收入$7.91BAbove market expectations of $7.674B and company guidance of $7.65B.
• FQ2 EPS$2.86Above market expectations of $2.68 and guidance of $2.64.
• FQ2毛利率50.0%Above market expectations of 49.3%.
• FQ3收入指引$8.95BSignificantly above market expectations of $8.153B.
• FQ3 EPS指引$3.36Above market expectations of $2.88.
• CY26系统收入增长预期>30% YoYHigher than the prior outlook of more than 20%.
• 2H CY26设备收入展望约$14.4B-$15BThe report says this is well above market expectations and implies roughly 40%-50%, or 44%-50%, YoY growth.
• 目标价$525Raised from $425 using roughly 30x FY2027/28 average EPS of $17.12.

Impact & implications

The investment implication of the report is that AMAT's results and guidance reinforce the view that the semiconductor capital equipment cycle is recovering and accelerating. AI-driven chip, wafer, and equipment demand, combined with growth in advanced nodes, DRAM, and advanced packaging, could support several quarters of revenue and earnings revisions higher.

Risks

• The semiconductor equipment industry could enter a downcycle.
• A deteriorating end-market mix could pressure revenue quality or margins.
• The company could lose share in key equipment markets.
• Geopolitical risk could affect China business, supply chains, or customer capex.

What to watch

• Whether CY26 and CY27 WFE growth is mainly driven by advanced-node Foundry/Logic, DRAM, and advanced packaging.
• Whether actual FQ3 revenue and EPS can meet the strong guidance.
• Whether 2H CY26 equipment revenue reaches about $14.4B-$15B and delivers roughly 40%-50% YoY growth.
• Whether China business and global ICAPS business remain flat to slightly up, as management expects.
• Whether gross margin can stay around 50% and continue to beat market expectations.
• Whether rolling eight-quarter forecasts from major customers continue to improve order visibility.