Applied Materials, Inc. (אפלייד מטיריאלס)
Analytical review · Quarter ended July 26, 2026 (Q3 of fiscal year 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. The company's quarterly report on Form 10-Q for the quarter ended July 26, 2026, filed on August 20, 2026; the Q1 and Q2 quarterly reports; the annual report on Form 10-K for fiscal 2025; the quarterly earnings releases from November 2025 through August 2026; and Form 8-K filings on the settlement with the U.S. Commerce Department and on a director appointment. The company's fiscal year ends in late October. Market data: closing price on Oct 6, 2026, Bank of Israel representative USD rate for the same day.
Company Profile
Applied Materials, Inc. makes the equipment chipmakers use to build chips: tools for depositing layers, etching, planarization, epitaxy, ion implantation and process control. The company is headquartered in Santa Clara, California, and employs about 38,900 people. It reports two segments: Semiconductor Systems (the equipment itself, 77% of revenue in the quarter) and Applied Global Services (spares, service and software for the installed base, 20%). The remainder is mainly display manufacturing equipment.
In the 12 months ended July 2026, revenue totaled $30.8 billion and net income $9.3 billion. Two customers accounted for 20% and 14% of revenue in the nine months; the filing does not name them. About 85% of revenue in the quarter came from customers outside the United States.
The company has no controlling shareholder and a single share class. CEO Gary Dickerson has held the role since 2013. On Aug 27, 2026, Akash Palkhiwala, CFO and COO of Qualcomm, was appointed to the board and its audit committee.
Financial Performance
The quarter: a sharp acceleration after a flat year
In the May–July 2026 quarter, revenue rose 24.8% to $9.12 billion, a quarterly record. Semiconductor Systems revenue rose 26.5% and services 21.7%. Gross margin rose from 48.8% to 50.3%. According to the filing, the Systems margin increase came from higher revenue, product mix, higher average selling prices and lower material and manufacturing costs. Research, development and engineering spending rose 22% to $1.1 billion.
The acceleration is recent. In Q1 of the fiscal year (November–January), revenue fell 2%. Non-GAAP EPS was $2.17–$2.48 in each of the five quarters before Q2, then jumped to $2.86 and then $3.50. Per management's Q4 guidance, revenue will be about $10.25 billion (plus or minus half a billion), an increase of about 51%. In each of the last three quarters, results came in above the midpoint of the range management had given in advance.
What needs to be normalized: GAAP earnings include fair-value changes on strategic equity investments. Over the nine months they added $949 million before tax, while in Q3 itself they subtracted $220 million. Q1 included a $253 million charge for the Commerce Department settlement. This review therefore uses non-GAAP earnings as the basis for comparison. Trailing 12 months: non-GAAP EPS of $10.91; GAAP EPS of $11.59.
| $ millions | Q3 FY25 | Q4 FY25 | Q1 FY26 | Q2 FY26 | Q3 FY26 |
|---|---|---|---|---|---|
| Revenue | 7,302 | 6,800 | 7,012 | 7,910 | 9,115 |
| Gross margin | 48.8% | 48.0% | 49.0% | 49.9% | 50.3% |
| Non-GAAP operating margin | 30.7% | 28.6% | 30.0% | 32.1% | 34.0% |
| Net income (GAAP) | 1,779 | 1,897 | 2,026 | 2,806 | 2,538 |
| Non-GAAP EPS ($) | 2.48 | 2.17 | 2.38 | 2.86 | 3.50 |
| Free cash flow | 2,050 | 2,043 | 1,040 | 210 | 2,330 |
The multi-year context
In fiscal 2021–2025, revenue grew 5.3% a year on average and EPS 7.9% a year. In 2023–2025, annual growth ranged from 2.5% to 4.4%. Free cash flow peaked at $7.6 billion in 2023 and has declined since, mainly because capital expenditures rose from $1.1 billion in 2023 to $2.8 billion over the last 12 months.
| Fiscal year, $ billions | 2021 | 2022 | 2023 | 2024 | 2025 | TTM to 7.2026 |
|---|---|---|---|---|---|---|
| Revenue | 23.06 | 25.79 | 26.52 | 27.18 | 28.37 | 30.84 |
| Net income (GAAP) | 5.89 | 6.53 | 6.86 | 7.18 | 7.00 | 9.27 |
| Free cash flow | 4.77 | 4.61 | 7.59 | 7.49 | 5.70 | 5.62 |
| Capital expenditures | 0.67 | 0.79 | 1.11 | 1.19 | 2.26 | 2.77 |
| Buybacks + dividends | 4.59 | 6.98 | 3.16 | 5.02 | 6.28 | 3.54 |
Balance Sheet & Capital
On July 26, 2026, the company held $14.5 billion in cash and investments against $6.5 billion of financial debt: $6.5 billion of notes and $0.1 billion of commercial paper. A $1.2 billion note matures in 2027 and has moved to current debt. Net cash stood at $8.0 billion, equity at $25.6 billion, and the current ratio at 2.4. Credit facilities of $4 billion were undrawn.
Working capital: Since the start of the fiscal year, accounts receivable rose 48%, from $5.2 billion to $7.7 billion. Days sales outstanding rose from 72 to 77. According to the filing, the reasons are more down-payment invoices for which revenue has not yet been recognized and less accounts-receivable factoring. Customer deposits (contract liabilities) rose only $0.7 billion over the same period, against a $2.5 billion rise in receivables. Inventory rose 11% to $6.6 billion, with work-in-process up 30%.
Capital return: The quarterly dividend rose 15% to $0.53. Buybacks slowed: $1.2 billion in the nine months versus $4.0 billion in the prior-year period. Diluted shares stood at 800 million, nearly unchanged over the year and 13% below 2021. Remaining buyback authorization: $12.8 billion.
Capacity investment: 79% of capital expenditures in the nine months were recorded in the "Other" category, which includes corporate facilities. The filings mention an R&D center in Silicon Valley (EPIC) and a new $500 million campus in Singapore. The company has recorded $1.2 billion of U.S. CHIPS Act tax credits, most of which are to be received as a refund.
Segments
From the start of fiscal 2026, the 200mm equipment business moved from services to Semiconductor Systems, and corporate costs are fully allocated to the segments. The 2025 quarters were recast accordingly.
| $ millions | Q3 FY25 | Q1 FY26 | Q2 FY26 | Q3 FY26 |
|---|---|---|---|---|
| Systems — revenue | 5,564 | 5,141 | 5,965 | 7,040 |
| Foundry, logic & other | 69% | 62% | 67% | 67% |
| DRAM | 22% | 34% | 29% | 26% |
| Flash (NAND) | 9% | 4% | 4% | 7% |
| Systems — operating margin | 33.0% | 27.8%* | 35.1% | 37.7% |
| Services — revenue | 1,463 | 1,559 | 1,665 | 1,781 |
| Services — operating margin | 27.3% | 28.1% | 29.2% | 30.1% |
| Other — operating income (loss) | (4) | (34) | (56) | (118) |
* Includes the Commerce Department settlement charge ($253 million). Excluding it: 32.9%.
Systems: Segment operating income rose 45% in the quarter. DRAM's share jumped to 34% in Q1 and returned to 26% in Q3. Services: Operating margin rose in each of the six quarters shown on the recast basis, from 24.8% in Q1 FY25 to 30.1%. In fiscal 2025, on the previous presentation, segment revenue grew only 2.6%. Other: The loss rose to $118 million in the quarter; the filing does not explain why.
Geography: China was 28% of revenue in the quarter, versus 35% a year earlier. In dollars, China revenue rose 2% over the nine months; the lower share reflects faster growth elsewhere. U.S. revenue doubled to $1.37 billion, and Europe tripled.
Competitive Position
The company describes itself as the largest process-equipment supplier in the industry, with a broad technology portfolio spanning several steps of chip manufacturing. According to its filings, it focuses R&D on technology transitions: gate-all-around (GAA) transistors, high-bandwidth memory (HBM) and advanced chip packaging. In Q3 it introduced six new systems for memory and advanced packaging, and expanded its joint research center to 11 partners, including Broadcom.
The installed base: The services segment sells spares, service and software for equipment already installed at customers, and is gradually moving to a subscription model. The more systems are sold, the larger the base the segment serves. According to the filing, services demand also depends on customers' fab utilization.
Where the filings show pressure points: customer concentration (two customers are 34% of revenue), export restrictions on China that keep being updated, and tariffs. The filing notes that export restrictions affect companies from different countries unevenly. This review does not include primary-source market-share data and does not compare the company with competitors.
How to Think About This Company
At Applied Materials, the central question is which earnings you measure against. This is an investment-cycle company: customers buy equipment when they build capacity or move to a new technology, and slow down when they do not. Q1 revenue fell 2%; per management's guidance, Q4 will rise about 51%. Someone who measures the company on the latest quarter, and someone who measures it on a multi-year average, will see two very different pictures of the same business.
The price already reflects a step change. The P/E ratio at fiscal year-ends 2021–2025 ranged from 11.8 to 26.0. On Oct 6, 2026, it stood at about 46 on GAAP earnings and about 49 on trailing non-GAAP earnings. Market value has grown 2.3x since the end of fiscal 2025, while trailing net income rose 32% over the same period. For comparison: for today's price to reflect a P/E of 21, EPS would need to reach about $25, more than twice trailing non-GAAP EPS. These figures describe the starting point; they do not determine a direction.
Management raised its outlook three times. In February, the CEO spoke of more than 20% growth in the equipment business for calendar 2026; in May, more than 30%; and in August, of a further increase, without a number in the written release. According to management, 2027 will also be a strong growth year. In each of the last three quarters, results beat the midpoint of guidance. Guidance is important information, but it covers only one quarter ahead.
Memory or logic. Much of the volatility in results relates to memory: DRAM's share of Systems revenue moved between 22% and 34% within four quarters. Foundry and logic, about two-thirds of the segment, are steadier in the mix. Anyone assessing the durability of growth needs to check how much of it rests on a memory investment wave.
Earnings up, cash flow less so. Over the nine months, non-GAAP earnings rose 19%, yet free cash flow dipped slightly, from $3.66 billion to $3.58 billion. Three things are behind this: capital expenditures double their past level, mostly in corporate facilities; receivables that grew far faster than deposits; and less factoring, which the filing does not quantify. Part of the gap is a financing choice and part is investment; the filings do not allow a full breakdown.
Services as a base. The services segment grew 22% in the quarter, and its operating margin rose six quarters in a row. On the other hand, in fiscal 2025 it grew only 2.6% and its margin declined. In other words, services are also affected by the cycle, though less than the equipment itself.
China and the Commerce Department. In February 2026 the company paid $252.5 million to settle over shipments to China in 2020–2022. The Justice Department and the SEC closed their investigations. The settlement includes an export denial order, but the order is suspended and will be waived after three years if the company completes internal audits of its compliance program. China is still 28% of revenue.
Tax. The non-GAAP tax rate was 11.0% in each of the three quarters of the year. In the Q1 filing, management wrote that the global minimum tax in Singapore would materially increase its taxes starting that quarter. The actual rate did not rise, and the filings do not explain the gap. Singapore incentives begin to expire in fiscal 2030.
Capital allocation has shifted. In 2021–2025, the company returned on average most of its free cash flow to shareholders, and more than all of it in two of those years. Over the last 12 months it returned 63%, and buybacks fell 71% over the nine months. The cash went to capacity investment and working capital. In the last month of the quarter, shares were bought back at an average of $591.73.
This framework is intended to structure analysis, not to produce an investment conclusion. It does not take part in the decision — the decision is the reader's.
Risks & Monitoring
Risks raised in the filings
- Cyclicality: According to the filing, revenue depends on chipmakers' capital spending and varies with end-product demand and the pace of technology transitions.
- Export restrictions and tariffs: The U.S. government continues to issue new licensing requirements. China has responded with tariffs and rare-earth restrictions.
- Commerce Department settlement: an export denial order suspended for three years, subject to internal audits.
- Concentration: two customers are 20% and 14% of revenue. According to the filing, action by a single customer can increase volatility.
- Capacity and supply chain: According to the filing, a rapid production ramp can strain operations and working capital, and a wrong demand forecast can lead to excess inventory.
- Tax: the global minimum tax, and the expiry of Singapore incentives from fiscal 2030.
Items to monitor in the Q4 report (mid-November 2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | Revenue and earnings vs. management guidance | Guidance: $10.25B revenue, $4.02 EPS |
| 2 | Systems segment gross margin | 55.3% |
| 3 | DRAM share of Systems revenue | 26% |
| 4 | China — share and dollars | 28%, $2.51B |
| 5 | Annual free cash flow vs. 2025 | 2025: $5.70B |
| 6 | Backlog and purchase obligations in the annual report | 10.2025: $15.0B and $10.6B |
| 7 | Receivables and customer deposits | $7.69B and $3.27B |
| 8 | Non-GAAP tax rate | 11.0% |
| 9 | "Other" segment loss | $118M |
| 10 | Buyback pace | $440M in the quarter |
Scenario Framework
The scenarios below are descriptive, not predictive. They include no prices, no probabilities, and do not rank outcomes. Their sole purpose is to organize the conditions that would need to hold for each state to materialize, so they can be checked against upcoming filings.
Scenarios are descriptive, not predictive.
- If backlog in the annual report rises clearly above $15.0 billion, and the portion beyond 12 months grows
- If foundry and logic stay around two-thirds of the mix even as memory investment slows
- If free cash flow starts rising with earnings as facility investment stabilizes
- If services operating margin stays above 28% even in a weak equipment quarter
- If revenue stabilizes around the level of the second half of 2026
- If gross margin moves around 49%–50%
- If buybacks stay below prior years' levels, and capital expenditures around 9% of revenue
- If the Commerce Department order stays suspended and export restrictions are not widened
- If memory investment declines, as DRAM's share did between Q1 and Q3
- If one of the two largest customers reduces orders
- If export restrictions on China are widened, or the suspended order is activated
- If receivables and inventory keep growing faster than revenue
Analytical Lens
The following six questions are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions used for every other company.
Key Observations
1. In the May–July 2026 quarter, the company reported revenue of $9.12 billion (+24.8%) and non-GAAP EPS of $3.50 (+41%). In Q1 of the same fiscal year, revenue fell 2%.
2. Per management's guidance, Q4 revenue will be about $10.25 billion and non-GAAP EPS about $4.02. In each of the last three quarters, results beat the midpoint of guidance.
3. Free cash flow over the nine months totaled $3.58 billion, versus $3.66 billion in the prior-year period. Capital expenditures rose to $2.0 billion, and receivables rose 48% since the start of the year.
4. The P/E on Oct 6, 2026 was about 46 on GAAP earnings, versus 11.8–26.0 at fiscal year-ends 2021–2025. China was 28% of revenue in the quarter, and in February 2026 a settlement with the U.S. Commerce Department was signed that includes a suspended export order.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held an investment advisory license in 2008–2023. As of the date of publication, the company does not hold an investment advisory, investment marketing or portfolio management license.
This document is intended for research and professional education only. Nothing herein constitutes a recommendation to buy, sell, hold or take any action in securities. Nothing herein substitutes for advice that takes into account each person's data and needs. Any decision is the investor's sole responsibility.
Past performance is not indicative of future results. Data were drawn from official sources: the quarterly report on Form 10-Q for the quarter ended July 26, 2026 (Aug 20, 2026), the Q1 and Q2 fiscal 2026 quarterly reports, the annual report on Form 10-K for fiscal 2025 (Dec 12, 2025), and the company's quarterly earnings releases and Form 8-K filings with the U.S. Securities and Exchange Commission. Historical multiples and price: stockanalysis.com. Reporting updates published after this date are not included.
Qualified-Client Review — Family Office
The full analytical review of Applied Materials (AMAT) for the quarter ended July 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company", a structured scenario framework, and a 6-dimension Analytical Lens.
Bakshi Finance · Family Office · All rights reserved 2026