Semiconductor Equipment Boom: Why Applied Materials' Momentum Matters for the AI Chip Race

The semiconductor equipment industry is experiencing significant traction from the explosive demand for AI and high-performance computing chips. Applied Materials (AMAT), a dominant player in wafer fabrication equipment (WFE), is capitalizing on this shift with impressive performance gains.

The AI-Driven Equipment Explosion

Chip manufacturers are racing to build advanced semiconductor capacity to meet AI infrastructure demands. This directly benefits equipment suppliers like AMAT, which provides the machinery to manufacture next-generation chips. The company’s portfolio addresses the most critical production challenges: Gate-All-Around transistors for sub-2nm processes, backside power delivery systems, advanced interconnect technology, HBM stacking solutions, and 3D metrology tools. These capabilities have become essential as chipmakers push toward leading-edge production.

AMAT’s recent product launches—including Xtera epi, Kinex hybrid bonding, and PROVision 10 eBeam—represent the company’s continued traction in solving real manufacturing bottlenecks. Foundries and logic producers are scaling up production lines, creating a natural tailwind for AMAT’s business growth.

Solid Financial Momentum

The numbers tell a compelling story. AMAT’s shares gained 53% over the past year, significantly outpacing the semiconductor equipment industry’s 32.3% growth. This performance gap reflects investor confidence in the company’s positioning within the AI chip supply chain.

In fiscal 2025, AMAT demonstrated particularly strong traction in DRAM segments, with revenues from leading-edge customers surging more than 50%. This isn’t a one-time spike—the company expects this trajectory to continue as next-generation chip production scales globally.

From a valuation perspective, AMAT trades at a forward price-to-sales ratio of 7.05X, below the industry average of 7.46X, suggesting the stock isn’t pricing in the full scope of AI-driven semiconductor expansion. Earnings forecasts for fiscal 2026 and 2027 have been revised upward recently, with expected year-over-year growth of 1.27% and 17.20% respectively.

Competitive Positioning

While competitors like Lam Research and ASML Holdings maintain strong positions in etching and lithography, AMAT’s traction comes from its comprehensive solutions across multiple manufacturing nodes and processes. Lam Research has gained ground in DRAM and Non-Volatile Memory with its Akara etch tool, while ASML dominates EUV lithography with its NXE:3800E systems. However, ASML faces near-term margin pressure from low-margin equipment and reduced upgrade revenue.

AMAT’s advantage lies in its diversified customer base and its ability to address bottlenecks across DRAM, logic, and advanced packaging simultaneously.

Headwinds to Monitor

Not all tailwinds are consistent. AMAT faced headwinds in fiscal 2025 from trade restrictions, particularly in China. The region’s share of total systems and services revenues dropped to 28% for the full year and 25% in Q4. Management expects China’s wafer fab equipment spending to remain depressed in 2026 without significant policy changes.

This geopolitical constraint could limit upside potential, though it also highlights how supply chain restructuring is directing investment to other regions, potentially creating new opportunities for AMAT in allied markets.

What It Means Going Forward

AMAT’s traction in WFE products reflects a genuine structural shift in semiconductor manufacturing. As AI adoption accelerates, the machinery to produce next-generation chips becomes increasingly valuable. The company’s financial performance, competitive moat, and earnings growth forecasts suggest room for further appreciation—though geopolitical risks and market concentration warrant attention from investors tracking this space.