Applied Materials Posts Highest Gross Margin in 25 Years: What the Income Statement Reveals for the Stock

Key Takeaways for Applied Materials Stock

• Applied Materials posted record revenue of $7.91 billion in Q2 fiscal 2026, up 11% year over year.
• Operating income reached $2.52 billion in the most recent quarter, with operating margins expanding to 32% from 29% eight quarters ago.
• Gross margins hit 50% in Q2, the highest level in more than 25 years, driven by value-based pricing on differentiated products.
• TIKR’s model values Applied Materials at approximately $697 by October 2030, implying around 19% total return from the current price of $586.

See how Applied Materials’ gross margin stacks up against the income statement over the past eight quarters. Explore AMAT financials on TIKR for free →

Applied Materials Posts Record Revenue and Its Highest Gross Margin in 25 Years After AI Demand Surges

Applied Materials (AMAT), the world’s largest supplier of semiconductor manufacturing equipment by revenue, reported its strongest quarterly results in company history following Q2 fiscal 2026 earnings on May 14.

Revenue hit $7.91 billion for the quarter, clearing analyst estimates by nearly 3%.

The company makes the deposition, etch, and materials engineering tools that chipmakers use to build transistors at the atomic scale, and AI-driven demand for those tools is now running at a pace Applied Materials has never seen.

CEO Gary Dickerson told analysts the company now expects its semiconductor systems business to grow more than 30% in calendar 2026, an upgrade from the 20% forecast issued just one quarter earlier.

The acceleration came from three converging forces: rapid expansion of AI computing infrastructure, Applied’s dominant positions in gate-all-around logic, DRAM memory, and advanced packaging, and a manufacturing operation that has nearly doubled output capacity over the past two years.

CFO Brice Hill described visibility that the company has not previously offered investors: the largest customers are now providing eight-quarter rolling production forecasts, giving Applied Materials earlier signal to plan its own supply chain and manufacturing ramp.

Dickerson addressed in Q2 earnings call that “the most critical innovations for AI computing are in the sweet spot for Applied,” positioning the company to capture premium pricing as each new tool generation solves more complex manufacturing problems for chipmakers.

Semiconductor Systems, the company’s largest unit covering equipment for logic and memory fabrication, posted record revenue of $5.97 billion for the quarter.

Applied Global Services, which sells support contracts and software upgrades for the installed base of connected chambers, posted record revenue of $1.67 billion, up 17% year over year.

Management guided Q3 revenue to approximately $8.95 billion, implying around 23% year-over-year growth in the quarter ahead.

The transcript shows why demand is accelerating faster than the market expected. See Applied Materials’ historical financials and forward estimates on TIKR for free →

Is AMAT Stock’s Gross Margin Expansion the Real Story Behind the Revenue Growth?

Applied Materials’ gross profit reached $3.95 billion in the most recent quarter, up 13% from the same period a year ago.

Gross margin crossed 50% for the first time in over 25 years, crossing a threshold that Hill described as the result of “value-based pricing from our most differentiated products.”

The progression across eight quarters tells a more specific story: gross margins moved from 47% to 50%, with the most recent quarter representing the clearest acceleration in that trend.

That same period saw operating income grow from $1.94 billion to $2.52 billion, a compounding of earnings power that revenue growth alone does not fully explain.

Operating margins expanded from 29% to 32% over the same eight-quarter span, which means the company is converting each incremental dollar of revenue into operating profit at a meaningfully higher rate than it did two years ago.

Total operating expenses reached $1.42 billion in the most recent quarter, the highest in the data set, but R&D spending of $1.03 billion accounts for the bulk of that figure.

The key observation is that R&D is outpacing revenue growth as a deliberate investment in next-generation tools, and yet operating margins are expanding anyway, because gross profit is compounding faster than costs.

Applied Materials Is Closing the Gross Margin Distance Faster Than Any Semicap Peer

Applied Materials entered the most recent quarter with gross margins of 50%, while KLA Corporation (KLAC) held 61% in the same period.

That 11-point gap has been stable across eight quarters, which means it is structural rather than cyclical, reflecting KLA’s process control niche where switching costs allow for premium pricing at a narrower revenue base.

Lam Research (LRCX) tracked Applied Materials closely through the period, reaching 50% in the most recent quarter from 48% two years ago, a trajectory that mirrors AMAT’s own expansion almost exactly.

ASML Holding (ASML) held 53% in the most recent quarter, sitting between Applied Materials and KLA on gross margin, with a profile that has been the most stable of the four peers across the eight quarters shown.

The critical observation for the thesis is that Applied Materials’ gross margin trajectory, moving from 47% to 50% over eight quarters, is the steepest rate of improvement in this peer group, and the only one of the four companies where the direction of change is unambiguously accelerating.

KLA’s structural lead at 61% reflects a different business model, not a gap that Applied Materials is expected to close, but AMAT’s rate of expansion is the most investable signal in the comparison because it reflects pricing power accruing from new tool generations rather than a static mix advantage.

Is Applied Materials Stock Undervalued in 2026? TIKR’s $697 Model Points to a Margin-Driven Case

TIKR’s model values Applied Materials at approximately $697 by October 2030, implying around 19% total return from the current price of $586, or roughly 4% per year.

The income statement mechanism that makes that target reachable is the same one already visible in the data: gross margins crossing 50% while R&D investment scales, creating a compounding gap between the company’s pricing power and its cost structure.

If Applied Materials sustains the gross margin trajectory already demonstrated over eight quarters, the operating leverage that is already inflecting has room to widen further as the equipment cycle continues into 2027.

The condition the TIKR target depends on is continued premium pricing on new tool generations, which the EPIC co-innovation platform and the gate-all-around product cycle are both designed to support.

See the full TIKR model for AMAT and stress-test the assumptions yourself. Build your own valuation on TIKR for free →

Should You Invest in Applied Materials, Inc.?

The only way to really know is to look at the numbers yourself. TIKR gives you free access to the same institutional-quality financial data that professional analysts use to answer exactly that question.

Pull up Applied Materials stock and you’ll see years of historical financials, what Wall Street analysts expect for revenue and earnings in the quarters ahead, how valuation multiples have moved over time, and whether price targets are trending up or down.

You can build a free watchlist to track Applied Materials alongside every other stock on your radar. No credit card required. Just the data you need to decide for yourself.

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What Did Applied Materials Say About AI Demand on the Earnings Call?

Dickerson told analysts that AI adoption is “accelerating and diversifying,” with agentic applications creating incremental demand for DRAM and NAND on top of existing generative AI infrastructure spend, and called 2027 a likely record year for the industry.