Last Update 16 Feb 26
Fair value Increased 60%AMAT: Future WFE Cycle Strength Will Drive Returns Higher
Analysts have lifted their implied fair value for Applied Materials from about $248 to roughly $399, citing higher assumed revenue growth, stronger profit margins, and a richer future P/E multiple. They link this to a broad wave of price target hikes and upgrades across recent Street research.
Analyst Commentary
Bullish analysts are broadly marking Applied Materials higher on their models, with a wave of target boosts clustered around recent earnings and guidance updates. The adjustments reflect a mix of sector level optimism and company specific drivers that feed into higher assumed earnings power and support for richer valuation multiples.
Bullish Takeaways
- Several firms, including JPMorgan and Goldman Sachs, are lifting price targets by large absolute amounts, which suggests their models factor in higher expected earnings and a willingness to pay a higher P/E for those earnings.
- Research citing secular wafer fab equipment, or WFE, growth and a larger service opportunity points to a view that Applied Materials can grow its addressable market, which supports higher long term revenue and cash flow assumptions in valuation work.
- Some analysts highlight stronger visibility into multi year demand and a view that WFE trends remain strong, which can give them confidence in applying less conservative discount rates or scenario ranges to future cash flows.
- Positive comments around China exposure being more normalized, along with references to capital return, suggest analysts see reduced risk in one area and potential upside from buybacks or dividends in their total return frameworks.
Bearish Takeaways
- Even as targets rise, at least one firm is keeping a Market Perform rating, which signals that some analysts see current valuation as already reflecting a good portion of the growth story.
- Where analysts describe WFE trends as strong but still frame Applied Materials with more neutral ratings, it points to caution around execution risk and cycle timing, especially as industry spending expectations move to very high levels.
- Comments that segment upside could be more modest in later years than in nearer term periods suggest some skepticism about sustaining the same growth pace, which can cap how far valuation multiples expand in their models.
- References to broad target increases across the semicap group indicate that some analysts view part of the move as sector driven, which may limit how much they differentiate Applied Materials on valuation versus peers.
What's in the News
- Applied Materials issued earnings guidance for the second quarter of fiscal 2026, calling for total net revenue of US$7.65b +/- US$500m, giving investors a reference point for near term demand and capacity trends. (Company guidance)
- The company reached a settlement with the U.S. Department of Commerce, agreeing to pay US$252.5m to resolve export control allegations tied to shipments to China between November 2020 and July 2022. The U.S. Department of Justice and SEC closed their related investigations without action. (Regulatory filing)
- Applied Materials announced that Samsung Electronics will join its planned US$5b EPIC Center in Silicon Valley, a large collaborative R&D facility aimed at accelerating development of next generation semiconductor process technologies, with operations targeted for spring 2026. (Company announcement)
- The company introduced new deposition, etch and materials modification systems designed to support 2nm and beyond logic chips and Gate All Around transistors, with applications that span advanced logic, DRAM and high bandwidth memory. (Product announcement)
- From July 28, 2025 to October 26, 2025, Applied Materials reported share repurchases of 5,000,000 shares for US$862.3m under the buyback announced on March 13, 2023. This completed a total of 35,924,539 shares repurchased for US$6,006.04m under that program. (Company buyback update)
Valuation Changes
- Fair Value: Implied fair value has risen significantly from about $248.44 to roughly $398.73 per share.
- Discount Rate: The discount rate has edged down slightly from 10.57% to 10.48%, indicating a small change in the risk or return hurdle used in the model.
- Revenue Growth: Assumed annual revenue growth has moved higher, from 5.92% to 14.32%, which meaningfully lifts projected dollar revenue over time in the model.
- Profit Margin: Assumed net profit margin has increased from 26.59% to 29.16%, reflecting higher expected dollar earnings on each dollar of sales in the forecasts.
- Future P/E: The future P/E multiple applied in the valuation has risen from 27.61x to 32.23x, indicating a higher assumed share price per dollar of future earnings.
Key Takeaways
- Leadership in materials engineering and advanced packaging positions the company to benefit from AI-driven semiconductor demand and global manufacturing expansion.
- Growing recurring revenues and deep customer collaboration provide margin resilience and support long-term financial growth amid industry transitions.
- Heavy reliance on a few major customers and regions, along with geopolitical and industry volatility, threaten revenue stability and intensify competition risks.
Catalysts
About Applied Materials- Engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries.
- Structural growth in AI and high-performance computing is reshaping semiconductor demand, driving heavy investments in advanced chip architectures such as gate-all-around (GAA) transistors, high-bandwidth memory (HBM), and advanced packaging. Applied is set to benefit from these device inflections due to its leadership in materials engineering and strong customer adoption of new process technologies, which are expected to deliver outsized revenue and market share gains as these nodes ramp from 2026 onward.
- The ongoing explosion in data creation and rapid adoption of digital transformation (IoT, automotive, industrial automation) continue to accelerate wafer fab buildouts globally-over 100 new fabs or expansions tracked this year-with Governments incentivizing regional manufacturing. Applied's broad portfolio and investments in local manufacturing infrastructure (e.g., new Arizona and EPIC centers) position it to capture a greater share of this growing and more geographically diverse capital expenditure, supporting both revenue growth and margin resilience.
- Advanced packaging remains Applied's area of highest market share, bolstered by strong customer collaboration and a growing pipeline of new hybrid bonding and integration technologies. The packaging segment is on track to more than double to over $3B in annual revenue in the next few years, which will meaningfully boost recurring revenue and expand overall net margins given the higher margin profile of these offerings.
- Recurring revenues from services and spares now comprise over two-thirds of the service segment's income, and the installed base continues to expand with each leading-edge and memory ramp. This increases earnings visibility, supports stable net margins, and buffers against near-term cyclicality or regional slowdowns, providing a more resilient financial profile.
- Despite current short-term uncertainty due to China digestion and fab order linearity, Applied's deep engagement and early-stage co-innovation with leading customers at major architecture transitions gives confidence that the company will capture incremental share and revenue as the AI wave, memory upgrade cycles, and advanced module integration all accelerate over the next several years, driving robust long-term EPS and revenue growth.
Applied Materials Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Applied Materials's revenue will grow by 4.3% annually over the next 3 years.
- Analysts assume that profit margins will increase from 23.9% today to 28.3% in 3 years time.
- Analysts expect earnings to reach $9.2 billion (and earnings per share of $11.94) by about September 2028, up from $6.8 billion today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, up from 19.1x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
- Analysts expect the number of shares outstanding to decline by 3.37% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 10.18%, as per the Simply Wall St company report.
Applied Materials Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Ongoing geopolitical tensions and export license uncertainties-especially with China, Applied's largest market-create persistent risks to revenue visibility and market share; prolonged delays or restrictions on export licenses could lead to a significant, sustained revenue decline from this region.
- High customer concentration in leading-edge logic (foundry/logic) and memory, with order linearity heavily tied to a few dominant customers, increases vulnerability to demand swings and capital spending delays, impacting both revenue stability and earnings visibility.
- Volatility and digestion cycles in end markets, particularly in China and mature node ICAPS, as well as muted leading-edge investment timing, could result in near
- to medium-term revenue and margin contraction as long as excess fab capacity persists.
- Increasing R&D investment-necessary to compete at AI and advanced technology inflections-comes with risk that escalating expenses may not translate into proportionate, timely revenue growth if delayed customer adoption or execution missteps occur, compressing future net margins.
- Intensified global competition, including from emerging Asian semiconductor equipment firms, combined with potential technological paradigm shifts and uncertainties around new markets, threatens long-term pricing power, share gains, and future revenue expansion.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $194.903 for Applied Materials based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $240.0, and the most bearish reporting a price target of just $160.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $32.5 billion, earnings will come to $9.2 billion, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 10.2%.
- Given the current share price of $163.5, the analyst price target of $194.9 is 16.1% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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