Applied Materials (AMAT) is the world's leading WFE (front-end process equipment) company that supplies etching, deposition, and packaging equipment necessary for manufacturing AI semiconductors. It emerged as a key beneficiary of the AI capex supercycle with record sales in Q2 FY2026 and guidance of +231 TP3T in Q3, but has surged +2421 TP3T over the past year and has entered the zone of a 12-month baseline target of 1 TP4T690 and a Hold rating.
Analysis Date: 2026-06-28 · Applied Exchange Rate: 1 USD = 1,535 KRW (All KRW conversions in this article were calculated using this exchange rate) · This article is an analysis for informational purposes only and is not an investment recommendation.
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- Key Summary of AMAT Fair Value Analysis
- What kind of company is Applied Materials (AMAT)?
- Key terms to know before AMAT analysis
- AMAT Recent Q4 Earnings Analysis
- AMAT Fair Value Analysis (DCF/Multiple)
- AMAT vs. Competitor Comparison
- AMAT Growth Outlook and Key Drivers
- AMAT 12-Month Target Price Scenario
- AMAT Recent Major Issues
- Key Risks When Investing in AMAT
- AMAT Investment Opinion Conclusion
- 5 AMAT Frequently Asked Questions
Key Summary of AMAT Fair Value Analysis
Applied Materials' 12-month baseline target price is $690 (approx. 1,059,150 KRW).
The investment recommendation is Hold.
The key rationale is the record earnings driven by the AI capex supercycle and Q3 guidance of +231 TP3T, but the valuation already significantly exceeds the historical average due to a one-year surge of +2421 TP3T.
The current price is $626.84 (approx. 962,199 KRW), and the market capitalization is $497.69B (approx. 763 trillion 954.2 billion KRW). The target price for a bullish scenario is $790 (approx. 1,212,650 KRW), and for a bearish scenario, $500 (approx. 767,500 KRW). The weighted expected return is approximately +6.5%, which falls within the Hold zone.
What kind of company is Applied Materials (AMAT)?
Applied Materials is a semiconductor equipment and materials engineering company headquartered in Santa Clara, California, USA, founded in 1967. It supplies etching, deposition, CMP, ion implantation, and metrology and inspection equipment to semiconductor manufacturers worldwide.
The business is divided into two segments. Semiconductor Systems accounts for the majority of revenue, while Applied Global Services (AGS), which handles installation-based services, parts, and upgrades, is responsible for recurring revenue.
The revenue model is structured to combine equipment sales (large, one-time) and AGS services and consumables (stable, recurring revenue). There are approximately 36,400 employees.
The competitive landscape consists of Lam Research (LRCX) in etching and deposition, KLA (KLAC) in inspection and metrology, and a monopoly in EUV lithography. ASML (ASML)It competes with or forms a complementary relationship with. AMAT's differentiating factor is that it possesses the broadest materials engineering portfolio, rather than a single process.
Key terms to know before AMAT analysis
- WFE (Wafer Fab Equipment) — The wafer front-end process equipment market. This is the key stage where AMAT holds the number one market share.
- Materials Engineering — Process technology for depositing, etching, and modifying thin films at the atomic level. It is AMAT's core competency and the foundation of its mission.
- Advanced Packaging — Back-end processing technology that combines multiple chips vertically and horizontally. It is a key area for boosting AI accelerator performance.
- HBM (High Bandwidth Memory) — High-bandwidth memory. Stacked DRAM is essential for AI GPUs and drives demand for AMAT's DRAM and packaging equipment.
- GAA (Gate-All-Around) — Next-generation transistor structure. As a key component of the transition to sub-2nm fine processes, it creates demand for new equipment.
- AGS (Applied Global Services) — AMAT’s service division. It is a stable, recurring revenue source generated from installed base equipment.
AMAT Recent Q4 Earnings Analysis
Revenue for the last four quarters (TTM) was $29,024M (approx. 44.5518 trillion KRW), growing by approximately +11.4% year-over-year. TTM net income was $8,508M (approx. 13.0598 trillion KRW), and TTM diluted EPS was $10.66 (approx. 16,363 KRW).
Profitability is solid. The gross profit margin is approximately 491 TP3T, the operating profit margin is 31.91 TP3T, and the net profit margin is 29.31 TP3T. The return on equity (ROE) is 39.71 TP3T, placing it among the top tier in the industry.
Quarterly revenue rebounded strongly in the recent quarter, rising from FQ3 2025 $ 7,302M → FQ4 2025 $ 6,800M → FQ1 2026 $ 7,012M → FQ2 2026 $ 7,910M. Diluted EPS is also accelerating, rising from $ 2.22 → $ 2.38 → $ 2.54 → $ 3.51.
| branch | Sales (USD M) | Diluted EPS | Operating Profit (USD M) |
|---|---|---|---|
| FQ3 2025 (Jul) | $7,302M | $2.22 | $2,233M |
| FQ4 2025 (Oct) | $6,800M | $2.38 | $1,893M |
| FQ1 2026 (Jan) | $7,012M | $2.54 | $2,096M |
| FQ2 2026 (Apr) | $7,910M | $3.51 | $2,523M |
The most recently announced FQ2 FY2026 (ending April 26, 2026) results were record. Revenue was 7.91 billion (approximately 12.1419 trillion KRW), an increase of 111% year-over-year, and GAAP EPS was 3.51% (+331% YoY) and non-GAAP EPS was 2.86% (+201% YoY). The GAAP gross profit margin was 49.91%.
By segment, Semiconductor Systems recorded a record $5.97B, DRAM sales grew by +18% YoY to $1.7B, and AGS grew by +17% YoY to a record $1.67B. The detailed figures are FQ2 2026 earnings 8-K filed with the SECYou can check it at.
Financial soundness is sound. Cash and cash equivalents stand at $8,241M (approximately 12.6499 trillion KRW), exceeding total liabilities of $7,268M, effectively placing the company in a net cash position. The current ratio is 2.5 times, and TTM free cash flow (FCF) is approximately $5,343M (approximately 8.2015 trillion KRW). However, quarterly FCF temporarily contracted in FQ2 due to large-scale capital investments and working capital burdens.
AMAT Fair Value Analysis (DCF/Multiple)
Current valuations are burdensome. The trailing P/E is 58.8x and the forward P/E is 38.5x, while the P/S is 17.1x and the P/B is 20.8x. The PEG ratio is approximately 2.08, which is not cheap even relative to growth.
The following are the key assumptions used to calculate the fair value of the DCF. The results are presented as a range rather than a single value.
| DCF assumption items | Usage value | reason |
|---|---|---|
| Discount rate (WACC) | 10.5% | Beta 1.67 · Cost of Capital · Industry Average |
| End-of-life value growth rate (g) | 3.0% | Long-term GDP + Inflation |
| forecast period | 5 years | WFE Cycle Visibility |
| Base FCF (Normalization) | $6,000M | Working capital fluctuation smoothing |
| Bull FCF | $7,800M | AI Capex Acceleration Scenario |
| Bear FCF | $4,200M | Capex Slowdown and Memory Shock |
The fair value range of the DCF based on this assumption is $540 to $720. The current price of $626.84 (approximately 962,199 KRW) is located in the upper-middle range of this range. In other words, it is judged to be at an appropriate level relative to the fundamentals, but close to the upper end.
However, when compared to peer premium equipment stocks, AMAT's forward P/E of 38.5x is lower than that of Lam Research (47.3x) and KLA (49.1x), and similar to that of ASML (37.4x). This means that while the absolute valuation is high, the relative valuation is actually more attractive. Bank of America's street-high target price raisedIt also reflects this relative attractiveness. The valuation assessment is 'fair to slightly overvalued'.
AMAT vs. Competitor Comparison
| item | AMAT | LRCX | KLAC | ASML |
|---|---|---|---|---|
| Market capitalization | $497.7B | $474.1B | $324.8B | $691.7B |
| TTM Sales (USD M) | $29,024M | $21,682M | $13,097M | Approx. $36,400M |
| TTM Sales Growth Rate (YoY) | +11.4% | +23.8% | +11.5% | +13.2% |
| Operating Profit Margin (TTM) | 31.9% | 35.0% | 41.2% | 36.0% |
| Preceding P/E | 38.5x | 47.3x | 49.1x | 37.4x |
| Key differentiators | Widest range of materials engineering portfolios | No. 1 in Etching and Deposition | Semi-monopoly on inspection and measurement | EUV lithography exclusive |
AMAT has the largest sales volume and the widest portfolio. On the other hand, its sales growth rate (+11.4%) is slower than that of Lam Research (+23.8%), and its operating profit margin (31.9%) is lower than that of the inspection and measurement quasi-monopoly KLA (41.2%) or ASML (36.0%).
In short, AMAT is characterized as a 'value play' among premium equipment stocks. Although it has the lowest multiple, its growth and margins are also relatively low, making it suitable for investors who prioritize stability and diversification. If you wish to bet on connected semiconductors within the same AI semiconductor chain... Astera Labs (ALAB), a key stock in AI-connected semiconductorsis an alternative from another angle.
AMAT Growth Outlook and Key Drivers
The growth rate estimate was calculated by weighting the three input values. The past 3–5 years revenue CAGR is approximately 101 TP3T, the analyst consensus growth rate is approximately 201 TP3T, and the WFE industry growth rate is approximately 151 TP3T. Applying the weighting formula (historical 0.4 + consensus 0.4 + industry 0.2), the expected growth rate is approximately 151 TP3T.
There are three key growth drivers. First, demand for AI accelerators is driving investment in HBM and advanced packaging equipment. Second, the transition to GAA transistors and sub-2nm processes is creating demand for new equipment. Third, AGS service revenue is growing steadily alongside the expansion of the installed base.
The Q3 FY2026 guidance supports this trend. It projected revenue of $8.95 billion (approx. 13.7383 trillion KRW) ±500 million, representing approximately +231 YoY growth, and non-GAAP EPS of $3.36 ±0.20, representing approximately +361 YoY growth. The key point is that quarterly revenue growth is accelerating from single digits to the 201 YoY range.
AMAT 12-Month Target Price Scenario
| scenario | Target price | Compared to the current price | Probability |
|---|---|---|---|
| Bull | $790 (approx. 1,212,650 won) | +26.0% | 25% |
| Base | $690 (approx. 1,059,150 won) | +10.1% | 50% |
| Bear | $500 (approx. 767,500 won) | -20.2% | 25% |
The base scenario $690 (approx. 1,059,150 KRW) is calculated by applying a forward P/E of approximately 40 times to the forward EPS of approximately $17, assuming that AI capex demand continues as guided.
The bullish scenario $790 (approx. 1,212,650 KRW) assumes that AI capex accelerates further and multiples expand, which aligns with the $740–790 street-high range suggested by B. Riley, Jefferies, and Wells Fargo at the end of June.
The bearish scenario $500 (approx. 767,500 won) is a case where the multiple is derated due to a slowdown in AI capex and a shock to memory prices, which is consistent with Morgan Stanley's Equal-Weight $502 forecast.
The probability weights were set to 50/25/25. Although fundamentals and guidance are strong, valuation pressure has increased due to a surge of +2,421 TP3T over the past year; therefore, 251 TP3T each was allocated to balance bullish and bearish directions. With a weighted expected price of approximately 1 TP4,667.5 and an expected return of approximately +6.51 TP3T, it is in the Hold zone.
AMAT Recent Major Issues
On June 25, 2026, AMAT announced a new family of chip manufacturing systems that implements next-generation AI 3D chip architectures. The event, which highlighted leadership in DRAM and advanced packaging technologies, continued bullish outlooks from Wall Street.
Major investment banks have significantly raised their target prices since the beginning of June. Street-high targets were presented in succession by firms such as B. Riley ($790), Jefferies ($770), Wells Fargo ($740), Bank of America ($720), and Citi ($710). The companies' guidance and earnings trends are AMAT IR FQ2 2026 Press ReleaseYou can check it directly at.
However, immediately prior to the analysis date, the semiconductor sector declined due to concerns over memory and storage costs, and AMAT's stock price also underwent a correction of approximately -61 TP3T in a single day. It should be noted that short-term volatility has increased.
Key Risks When Investing in AMAT
First is valuation risk. After a sharp rise of +2,421 TP3T over the past year, the stock is trading at a trailing P/E of 58.8x. If AI momentum wavers, the stock price could plummet due to multiple de-rating. The indicators to monitor are the quarterly guidance and the trend of the forward P/E.
Second is the China-related geopolitical risk. Given the high proportion of sales in China, equipment shipments will be directly impacted if U.S. export restrictions on China are tightened. Key indicators to monitor are quarterly sales breakdowns by region and the announcement of new export controls.
Third is the AI capex cycle risk. A slowdown in investment by hyperscalers or volatile fluctuations in memory prices dampen WFE demand. Recent instances of the sector undergoing a correction due to concerns over memory costs illustrate this. Key indicators to monitor include major customer capex guidance and the WFE market outlook. Stocks exposed to the same memory and semiconductor market conditions include Analog Devices (ADI), a beneficiary of the semiconductor industry recoveryIt is also worth referring to.
AMAT Investment Opinion Conclusion
The investment recommendation is Hold, and the confidence level is Medium. The investment timeline is 12 months.
AMAT is the No. 1 WFE company guarding the gateway to AI semiconductor manufacturing and possesses strong fundamentals, including record earnings, Q3 guidance of +231 TP3T, and a bullish consensus from 35 analysts. Its multiple is also lower compared to premium equipment stocks in the same industry.
However, as it surged by +2,421 TP3T over the past year, the expected return has narrowed to the mid-single digits (+6.51 TP3T), and the absolute valuation burden is significant at a lagging 58.8x. Rather than making new purchases, a staggered approach or re-entering during corrections is reasonable. The weighting is recommended at a satellite level, rather than as a core component of the portfolio.
5 AMAT Frequently Asked Questions
Q1. What is the 12-month target price for Applied Materials (AMAT)?
Based on the base scenario, the level is $690 (approx. 1,059,150 KRW), with a bullish range of $790 (approx. 1,212,650 KRW) and a bearish range of $500 (approx. 767,500 KRW). The weighted expected return is approximately +6.5%, placing it in the Hold zone.
Q2. Why is AMAT classified as a beneficiary of AI semiconductors?
This is because it supplies etching, deposition, and packaging equipment essential for AI chip production. The transition to HBM, GAA, and advanced packaging creates demand for new equipment, and its position as the number one player in the WFE market concentrates this demand.
Q3. Is AMAT's current stock price overvalued or undervalued?
With a forward P/E of 38.5x and a trailing P/E of 58.8x, it exceeds the historical average. Situated in the upper-middle range of the DCF fair value range of $540–$720, it is assessed as 'fair to slightly overvalued'. However, the multiple is low compared to peers such as Lam Research and KLA.
Q4. Which is more attractive to invest in, AMAT or ASML?
ASML's strengths lie in its EUV monopoly, high margins (36.01 TP3T), and high growth (+13.21 TP3T), while AMAT's strengths are its broadest portfolio and lower multiples compared to peers. ASML holds the advantage in monopoly moat and growth, while AMAT excels in diversification and value.
Q5. What is the biggest risk when investing in AMAT?
The greatest risk is valuation derating following the surge. Next are dependence on sales in China, export restrictions to China, a slowdown in AI capex, and memory price volatility. Quarterly guidance, the proportion of sales in China, and the WFE outlook must be monitored.
Sources
- Applied Materials FQ2 2026 Earnings Release 8-K (SEC EDGAR)
- Applied Materials Announcements Second Quarter 2026 Results (IR)
- Bank of America Street - High Price Target for Applied Materials (Barchart)
This article is an analysis intended for informational purposes only and is not an investment recommendation. The ultimate responsibility for all investment decisions rests solely with the investor, and you must exercise your own judgment and conduct further verification before making any investment decisions.
※ This analysis utilized AI tools during the writing process, and the final content has been verified by the author. It is for informational purposes only, and investment decisions and responsibilities lie solely with the investor.