How Applied Materials Makes Money, and Why a Record Quarter Didn’t Move the Stock
Applied Materials just had the biggest quarter in its history. Revenue rose 53% to $10.41 billion and adjusted earnings per share nearly doubled. The next day the stock fell. To understand why, you first need to understand what Applied actually sells, and who is buying it.
The short answer
Applied Materials makes money selling chipmaking machines to foundries and memory makers, plus spare parts and service for tools already installed. In Q4 fiscal 2026 revenue jumped 53% to a record $10.41 billion, led by DRAM memory and advanced packaging, but the stock still slipped 2.7% as expectations ran ahead.
Applied Materials Q4 fiscal 2026: the key numbers
Metric | Q4 FY2026 | Q4 FY2025 | Change |
Revenue | $10,409M | $6,800M | +53% |
GAAP gross margin | 50.4% | 48.0% | +2.4 pts |
GAAP operating margin | 35.1% | 25.2% | +9.9 pts |
GAAP net income | $2,718M | $1,897M | +43% |
GAAP EPS (diluted) | $3.40 | $2.38 | +43% |
Non-GAAP EPS | $4.16 | $2.17 | +92% |
Free cash flow (non-GAAP) | $2,616M | $2,043M | +28% |
Full-year FY2026 revenue | $34,446M | $28,368M | +21% |
Quarter ended 25 October 2026. Source: Applied Materials’ Q4 fiscal 2026 earnings release, filed with the SEC on 12 November 2026.
What does Applied Materials actually sell?
Applied does not make chips. It makes the equipment that makes chips. A modern processor or memory chip is built by laying down, etching away and modifying hundreds of ultra-thin layers of material on a silicon wafer. Applied’s machines do much of that work: deposition, etch, ion implantation, chemical-mechanical polishing, and the electron-beam and optical tools that inspect and measure the results. Its customers are the chipmakers themselves: foundries, logic makers and memory companies.
The company reports this as three buckets. Semiconductor Systems is new equipment. Applied Global Services (AGS) is spare parts, upgrades and service agreements for the tens of thousands of Applied tools already running in fabs. Other is mainly its display business.
Segment, Q4 FY2026 | Revenue | YoY growth | Operating margin |
Semiconductor Systems | $7,996M | +64% | 38.8% |
Applied Global Services | $1,896M | +26% | 30.5% |
Other (incl. Display) | $517M | +25% | Loss |
Total | $10,409M | +53% | 35.1% |
Growth rates are our calculation from the release. Equipment is about 77% of revenue and the more profitable segment, which is why a strong year for new tools moves Applied’s earnings so sharply.
Why do DRAM and advanced packaging matter so much?
AI servers need two things in huge quantities: leading-edge logic chips such as GPUs, and high-bandwidth memory (HBM), which is made from stacked DRAM. Both need more of the deposition, etch and inspection steps Applied sells. Inside Semiconductor Systems, DRAM rose to 33% of revenue in Q4 from 28% a year earlier, while foundry and logic slipped to 58% from 66%. Flash memory was 9%.
Advanced packaging is the other fast lane. Stacking memory dies and joining chips side by side takes new bonding and interconnect steps. According to the earnings call transcript, management expects advanced packaging revenue to rise about 90% in calendar 2026 and inspection and metrology revenue to grow more than 50%. CEO Gary Dickerson also said Applied is on track to grow Semiconductor Systems more than 40% in calendar 2026, and that he expects wafer fab equipment demand to rise more than 30% in 2027.
Why is the services business underrated?
AGS is the steady part of Applied. Every tool it sells needs parts and maintenance for years, and the installed base keeps growing. Services revenue rose 26% to $1.896 billion in the quarter and $6.901 billion for the year, with a 30.5% operating margin in Q4. When chipmakers cut new-equipment spending in a downturn, they still have to keep their existing fabs running, which is what makes this revenue less cyclical.
Where in the world does the money come from?
Page 21 analysis: China is growing, just more slowly
Region | Q4 FY2026 revenue | Share | Q4 FY2025 share |
Taiwan | $2,916M | 28% | 27% |
China | $2,642M | 25% | 29% |
Korea | $1,811M | 17% | 18% |
United States | $1,320M | 13% | 10% |
Japan | $619M | 6% | 6% |
Southeast Asia | $581M | 6% | 7% |
Europe | $520M | 5% | 3% |
China revenue actually rose about 35%, from $1.964 billion to $2.642 billion (our calculation). Its share fell because Taiwan, home to TSMC, and the US grew faster. On the call CFO Brice Hill said he expects China to be less than 25% of the business in 2027. That matters because China is where export-control risk sits: in fiscal 2026 Applied took a $253 million charge to settle an export-controls matter with the US Commerce Department’s Bureau of Industry and Security, according to the release.
Why didn’t a record quarter move the stock?
Applied reported after the market closed on 12 November. The next day the shares fell as much as 7.5% to $352.23 before closing down 2.7% at $370.50, based on Yahoo Finance prices. That left the stock roughly half its 52-week high of $739.67. Three things explain the gap between the results and the reaction.
The beat was small relative to the hype. Adjusted EPS of $4.16 topped estimates of about $4.05 to $4.06, and revenue topped roughly $10.3 billion, according to Investing.com and TheStreet. Real beats, but modest for a stock that had run up on AI hopes.
The guide was read two ways. Applied guided Q1 fiscal 2027 revenue to $11.1 billion, plus or minus $500 million. Investing.com said that was above the roughly $10.89 billion analysts expected; a Yahoo Finance contributor said it was below an $11.41 billion consensus, in a 14-week quarter. When the market cannot agree whether a guide is a beat, a richly valued stock tends to drift lower.
The whole sector sold off. Yahoo Finance reported that Lam Research and KLA also fell and that at least 10 firms cut their Applied price targets, most keeping Buy-equivalent ratings. Investing.com said the Nasdaq fell 1.5% on a hot producer-price report and nerves over Nvidia’s CEO change.
In other words, the quarter was priced in. Supply, not demand, is the constraint management keeps talking about: Dickerson said demand is much higher than supply, and the company is investing to double its systems output from fiscal Q4 levels by 2028.
What happens next for Applied Materials?
The company expects Q1 fiscal 2027 non-GAAP EPS of $4.35, plus or minus $0.20. Watch three things: whether supply constraints ease enough to lift shipments, whether memory makers keep adding HBM capacity, and whether new export rules hit China sales. Applied also returned $2.42 billion to shareholders in the quarter, including $2.0 billion of buybacks, which the CFO called the largest quarterly repurchase in more than eight years.
Applied Materials FAQs
How does Applied Materials make money?
Mostly by selling the machines chipmakers use to deposit, etch, inspect and modify materials on silicon wafers. That is its Semiconductor Systems segment, which made $7.996 billion of the $10.409 billion total in the quarter ended 25 October 2026. Applied Global Services, which sells spare parts, upgrades and service contracts for the installed base of tools, added $1.896 billion.
Did Applied Materials beat earnings in Q4 fiscal 2026?
Yes. Non-GAAP EPS was a record $4.16, up 92%, against analyst estimates of about $4.05 to $4.06 cited by Investing.com and TheStreet. Revenue of $10.41 billion was up 53% and above the roughly $10.3 billion consensus.
Why did Applied Materials stock fall after a record quarter?
Expectations were already high and the whole chip-equipment group sold off. The shares closed down 2.7% at $370.50 on 13 November after falling as much as 7.5% during the day. Reports disagreed on whether the $11.1 billion revenue guide beat forecasts, at least 10 firms cut price targets, and Nvidia’s CEO change and hot inflation data weighed on tech stocks.
How much of Applied Materials’ revenue comes from China?
$2.642 billion, or 25%, in Q4 fiscal 2026, down from 29% a year earlier even though the dollar amount rose. On the earnings call CFO Brice Hill said he expects China to be less than 25% of the business in 2027, because AI-driven markets elsewhere are growing faster.
What is Applied Materials’ guidance for Q1 fiscal 2027?
Revenue of $11.1 billion, plus or minus $500 million, and non-GAAP EPS of $4.35, plus or minus $0.20. At the midpoint that is 58% revenue growth year over year, according to the company’s call.
Sources
Applied Materials: Q4 and fiscal 2026 earnings release (Exhibit 99.1, SEC EDGAR, Nov 12, 2026)
Applied Materials Q4 2026 earnings call transcript (The Motley Fool, Nov 13, 2026)
Yahoo Finance: Applied Materials sinks after record quarter (Nov 13, 2026)
Investing.com: Why is Applied Materials stock sliding today? (Nov 13, 2026)
Related on Page 21
This article is for general information and education only and is not investment advice. Figures are from Applied Materials’ Q4 fiscal 2026 earnings release and the reports linked above, as of the 13 November 2026 close.
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