Applied Materials Raises Growth Guidance Again as Customers Lock In Visibility Through 2030, Plans to Double Manufacturing Capacity by 2028
Q3 fiscal 2026 earnings call, August 13, 2026 — record quarter with unprecedented forward demand signals
Applied Materials delivered the strongest sequential revenue growth in its history during fiscal third quarter 2026, and management used the call to reveal just how much further visibility the AI buildout has given them. CEO Gary Dickerson and CFO Brice Hill disclosed that the company has once again raised its internal growth outlook for calendar 2026 semiconductor systems revenue, moving past the "greater than 30%" framework given just one quarter ago. "The mid — the greater than 30% that we highlighted last quarter, we're saying now that it's greater than that at this point," Hill told analysts, while declining to pin down a specific number ahead of the company's October investor day.
The more striking disclosure was around the length of customer commitments. Applied's largest customers are now providing detailed 8-quarter rolling forecasts, but conversations on technology roadmaps are extending out much further. "On the technology, I would say that those discussions go out maybe 10 years in the future because Applied is the most enabling for those key architecture inflections," Dickerson said, while Hill separately noted some capacity-planning conversations already reach into 2030. This is a meaningfully longer horizon than semicap peers have typically disclosed, and it appears to be driving Applied's own capital decisions rather than just marketing color.
Doubling capacity by 2028 — not a revenue forecast, but a supply chain commitment
Perhaps the most concrete new data point from the call: Applied is adding manufacturing headcount and floor space to double its quarterly system output from current levels by 2028, with a further capacity expansion already being planned to support demand growth into 2030. The company added more than 1,500 people in worldwide manufacturing and services support in the quarter alone, and recently opened a new manufacturing center in Singapore. When UBS analyst Timothy Arcuri asked whether that "doubling" language implied a roughly $14 billion quarterly revenue run rate by 2028, Hill pushed back on a literal read: "It is more nuanced... it's capacity. So it's not a revenue forecast for 2028." Instead, Applied is pre-positioning its supply chain — including communicating specific requirements to component suppliers — so it isn't caught flat-footed if demand materializes at the high end of what customers are signaling.
Margins: value-based pricing is working, but near-term ramp costs cap expansion
Applied's non-GAAP gross margin reached 50.4% in the quarter, up 150 basis points year-over-year, marking the 13th consecutive quarter of year-over-year gross margin expansion. Segment gross margin in semiconductor systems hit 55.4%. Hill attributed roughly 300 basis points of margin gains over the past three years to a systematic value-based pricing framework put in place after COVID-era cost inflation forced the company to reprice every tool individually. "We put that value-based process in place... we examine the value of every single tool and put a new price on every single tool," Hill explained, adding that the approach will remain in place given continued input cost volatility.
Even so, management guided Q4 gross margin roughly flat sequentially at 50.4%, which surprised some analysts given the strong revenue ramp. Bernstein's Stacy Rasgon pressed on the disconnect, and Hill attributed it primarily to hiring-related ramp costs tied to scaling customer support engineers and manufacturing staff, alongside faster growth in the lower-margin display business. Hill characterized the medium-term trajectory as "slow improvement" rather than a step-change, with the ramp headwind expected to recede as revenue continues to climb.
DRAM, packaging and ICAP all inflecting higher
DRAM revenue, which includes HBM packaging, grew 52% year-over-year to record levels, and management flagged a "very significant increase" in DRAM revenue in the second half of the calendar year as customers begin expanding clean room capacity dedicated to memory. Dickerson reiterated that Applied is the top process equipment provider in DRAM and pointed to deep partnerships around future architectures including 6F-squared, 4F-squared and eventual 3D DRAM structures.
Packaging revenue is now expected to grow more than 70% in calendar 2026, with Applied describing itself as the overall leader in high-bandwidth memory and 3D chiplet stacking. Dickerson provided fresh color on two emerging inflections: panel-level packaging and hybrid bonding. On the former, he avoided giving a specific timeline but said panel revenue will see "pretty significant growth" in 2027 and ramp further afterward, supported by a broad technology portfolio spanning digital lithography, deposition, etch and e-beam review. On hybrid bonding, he called it "a very important inflection for all of our customers" as chipmakers look to shorten wiring length for performance and power gains, noting Applied holds the only integrated R&D facility co-developing the surrounding process steps with customers.
A notable shift came on the industrial and automotive (ICAP) end markets, which Applied had previously guided to be flat to slightly up for the year. Management now expects ICAP to return to growth both in 2026 and 2027, citing rising utilization, tightening supply and strength in power and photonics devices — alongside a stronger outlook for China, which the company expects to grow this year and next, led by 28-nanometer foundry logic investment. China represented 26% of combined semiconductor systems and services revenue in the quarter. NAND, by contrast, remains the laggard: revenue doubled off a small base but is expected to be the slowest-growing segment next year, with most spending still tied to layer-count upgrades rather than new wafer capacity, aside from some new projects in China.
EPIC strategy gains a marquee partner in Broadcom
Applied's EPIC co-innovation program — designed to embed the company earlier in customers' architecture decisions — added Broadcom as a partner during the quarter, focused on accelerating advanced chip packaging technologies for next-generation AI systems. The company also signed agreements with Screen and UC Berkeley, bringing total EPIC engagements to 11. The centerpiece of the strategy, a new EPIC Center in Silicon Valley, will receive its first R&D tool into the clean room next week, with operations expected to begin in the coming months. Dickerson framed the payoff in straightforward terms: earlier access for customers to Applied's next-generation tools, and for Applied, earlier design-in on new packaging and chip architectures along with better multi-node visibility to guide investment.
Services and metrology businesses outgrowing the core
Applied Global Services revenue rose 22% year-over-year to $1.8 billion, with operating margin reaching 30.1%, up 280 basis points, aided by AI-driven warehouse automation and monitoring tools layered onto more than 37,000 field-connected chambers. Management raised its full-year AGS growth outlook to more than 20% for calendar 2026, with a mid-teens long-term sustainable growth rate. Process diagnostics and control, which includes e-beam and optical inspection tools used to accelerate yield, is now expected to grow more than 50% in calendar 2026 — outpacing the broader systems business — as advanced nodes require more inspection steps per wafer.
Fourth-quarter guidance and capital returns
For fiscal Q4, Applied guided revenue of $10.25 billion, plus or minus $500 million, up 51% year-over-year, and non-GAAP EPS of $4.02, plus or minus $0.20, up 85% year-over-year. Within that, semiconductor systems revenue is guided to roughly $7.9 billion, up 62% year-over-year, and AGS to about $1.84 billion, up 22%. The company generated more than $3 billion in operating cash flow and $2.3 billion in free cash flow during the quarter, returning $860 million to shareholders through dividends and buybacks, and has $12.8 billion remaining under its repurchase authorization. Management continues to target distributing 80% to 100% of free cash flow to shareholders. Capital expenditures are expected to remain elevated as a dollar figure through 2027 but decline as a percentage of revenue, as the company builds out clean room space to support the demand it says is now visible through the end of the decade.