AI computing power and storage demand exceed expectations, semiconductor equipment welcomes a super cycle! Applied Materials' performance outlook crushes expectations.

One of the world's largest semiconductor equipment manufacturers, Applied Materials (AMAT.US), released its latest quarterly performance and future outlook report after the US stock market closed on Thursday. The data shows that Applied Materials, Inc., which covers almost the entire range of high-end semiconductor equipment, has provided better-than-expected quarterly performance and extremely strong future performance guidance, highlighting the super growth cycle that semiconductor equipment manufacturers are experiencing amidst the global AI computing infrastructure construction boom and the "storage chip super cycle" macro backdrop. They will be the largest beneficiaries of the rapid expansion trend of AI chips (including AI GPU/AI ASIC) and the capacity expansion trend of DRAM/NAND storage chips. Applied Materials stock price surged over 14% in after-hours trading of the US stock market primarily due to the company's unexpectedly strong revenue forecast, indicating that the demand for AI and storage semiconductor chips is significantly driving leading chip manufacturers like Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR to accelerate their purchases of semiconductor high-end manufacturing equipment. In terms of the performance outlook that the market is most focused on, this largest US semiconductor manufacturing equipment and advanced packaging equipment supplier expects its revenue for the second quarter of the 2026 fiscal year to be around $7.65 billion, with a fluctuation range of around $500 million. In comparison, Wall Street analysts' average revenue expectation for Applied Materials in this quarter (ending in April) is $7.03 billion it should be noted that as the production of 3nm and below advanced process AI chips, CoWoS/3D advanced packaging capacity, and DRAM/NAND storage chip production capacity expansion accelerate significantly, analysts have continuously raised revenue expectations for Applied Materials since the beginning of this year. Under the latest Non-GAAP guidelines, Applied Materials' outlook for earnings per share for the second quarter ranges from $2.44 to $2.84 (excluding certain items), which is significantly higher than the analysts' average expectation of $2.29. Applied Materials CEO Gary Dickerson stated in a statement, "The accelerated global industry investment process in the AI computing field is driving the company's performance towards a strong growth trajectory." Regarding the first quarter performance of the 2026 fiscal year ending January 25, although the first-quarter revenue decreased by a small 2% year-on-year to $7.01 billion, the decline was much smaller than the company's previous expectations and significantly stronger than the analysts' average expectation of approximately $6.86 billion. The first-quarter earnings per share on a Non-GAAP basis were $2.38, higher than the Wall Street average expectation of $2.21, and almost consistent with the same period of the previous year; the first-quarter gross margin of the company reached 49%, compared to approximately 48% in the same period last year, while the first-quarter Non-GAAP free cash flow reached $1.04 billion, representing a significant growth of 91%. The biggest highlight of the performance report: strong equipment demand brought by the expansion of storage chips Applied Materials is rebounding significantly from a slowdown in growth triggered by a new round of US government export restrictions on semiconductor equipment. China, which has long been subject to US chip sanctions, is the largest market for the company's semiconductor manufacturing equipment products, but in recent years, many of Applied Materials' high-end semiconductor manufacturing equipment models have been unable to be exported to China. The demand for semiconductor equipment expansion related to the expansion of DRAM/NAND storage chip production capacity is a significant growth highlight in the latest quarterly performance and future outlook report for Applied Materials, highlighting that major customers such as Samsung Electronics, Micron Technology, Inc., and SK hynix are accelerating their capacity expansion to address the market's severe shortage. After releasing a strong performance outlook on Thursday, the stock reached a high of $375 in after-hours trading of the US stock market. The stock has risen significantly by 28% since the beginning of the year, closing at $328.39 on Thursday. In a performance conference call, Dickerson mentioned that the extraordinarily strong demand for high-bandwidth storage (HBM) a high-performance storage device used for AI computing systems is a key driving factor. "We expect that this year, calculated on a calendar year basis, the semiconductor equipment business will grow by more than 20%," he said. HBM is a high-bandwidth, low-power storage technology specifically used in high-performance computing and graphics processing fields. HBM connects multiple stacked DRAM chips together through 3D stacking technology, enabling high-speed and high-bandwidth data transfer through fine Through-Silicon Vias (TSVs), and is used in conjunction with AI GPU chips like NVIDIA Corporation GB200/GB300, and Alphabet Inc. Class C TPU AI chips. The essence of HBM storage systems is to upgrade DRAM from "single-chip density/cost optimization" to "system-level interconnect optimization for GPU bandwidth/power efficiency": higher stacking layers, higher I/O density, more aggressive interconnection pitch, which significantly strengthens key processes in DRAM manufacturing (such as deep hole etching, dielectric/barrier layer deposition, metal interconnection and flattening, defect/surface control). At the same time, as a key supply for AI computing systems, HBM is also driving the industry's urgent need for capacity expansion and yield ramp. The three major dominating storage chip manufacturers, SK hynix, Samsung, and Micron, are all concentrating most of their capacity on HBM storage systems these types of storage products require more advanced process capacity and are more complex in manufacturing and testing compared to DDR series and HDD/SSD series storage chips, thus the ongoing transfer of production capacity to HBM by the three major storage chip leaders has significantly contributed to the inadequacy of regular storage products for industrial, automotive, and consumer electronics applications. The CEO of the US storage giant, Micron Technology, Inc., stated during the first quarter fiscal year 2026 earnings call that all of the company's HBM capacity for the year 2026 has been fully booked, and he expects the total addressable market (TAM) for HBM to reach $100 billion by 2028 (compared to approximately $35 billion in 2025). A Bloomberg Intelligence research report states that Applied Materials' etching and deposition tools for manufacturing DRAM-type storage chips "will expand due to the strong demand from AI chip customers like NVIDIA Corporation". The performance report also indicates that the company has just resolved a highly publicized regulatory issue. Earlier this week, Applied Materials announced plans to pay $2.525 billion to settle an investigation by the US Department of Commerce on improper exports to China, ending a years-long investigation. Undoubtedly, the stricter export controls by the US government have had a significant negative impact on the company's fundamentals. In October, Applied Materials stated that the expanded restrictions by the US government on China would lead to a loss of approximately $600 million in revenue in the 2026 fiscal year. This semiconductor equipment giant based in Santa Clara, California also announced plans to cut 4% of its global workforce. Although Applied Materials stock price rose significantly by 58% last year, it still lags behind other US semiconductor equipment manufacturers in terms of explosive stock price performances. For example, during this period, the stock price of Lam Research Corp. almost doubled, and KLA Corp.'s stock price increased by 93%. After Applied Materials announced a strong performance outlook on Thursday, these stocks also gained momentum in after-hours trading. AI computing and storage chip demand are experiencing wild expansion! Semiconductor equipment welcomes the super cycle Recently, several Wall Street financial giants have released research reports stating that the semiconductor equipment sector is one of the biggest beneficiaries under the backdrop of exploding demand for AI computing and storage. With the increasingly vigorous construction of global super-scale AI data centers led by tech giants like Microsoft Corporation, Alphabet Inc. Class C, and Meta, driving leading chipmakers' production expansion of 3nm and below advanced process AI chips, CoWoS/3D advanced packaging capacity, and DRAM/NAND storage chip capacity, the long-term bull market logic of the semiconductor equipment sector is becoming increasingly robust. After Alphabet Inc. Class C launched the Gemini3 AI application ecosystem in late November, this cutting-edge AI application software quickly gained global popularity, driving a sudden surge in AI computing demand by Alphabet Inc. Class C. The Gemini3 series products brought an incredibly large amount of AI token processing upon release, prompting Alphabet Inc. Class C to significantly reduce free access to their Pro models and implement temporary limitations on Pro subscription users, along with the recent launch of a series of AI tools/agent-based AI intelligent body collaboration platform by Anthropic, which has been dubbed the "rival of OpenAI", instantly became a hit. Combined with recent trade export data from South Korea showing strong demand for SK hynix and Samsung Electronics' HBM storage systems and enterprise SSD, further confirming the Wall Street's exclamation that "the AI craze is still in the early stages of infrastructure construction where AI computing infrastructure supply cannot meet demand". The unprecedented wave of AI infrastructure and the storage super cycle have pushed the semiconductor industry into a new stage that is more "material-intensive, process control-intensive, and forward-thinking in packaging technology": logic-based three-dimensional structures and new material overlay, storage-side HBM stacking and interconnection upgrades, packaging-side CoWoS/hybrid bonding translate system performance into manufacturing difficulty these three forces collectively increase the value density of key processes such as deposition/etching/CMP/advanced packaging/core measurement, and transform the semiconductor equipment demand from "cyclic fluctuations" to a more clearly defined "structural expansion cycle". Particularly noteworthy is that advanced packaging is accelerating from the "solder bump era" to the "hybrid bonding era": hybrid bonding further shortens interconnect lengths, increases I/O density, and reduces energy consumption through copper-copper direct interconnects, which align perfectly with the extreme bandwidth-delay-power constraints of AI training/inference. Applied Materials not only explains on their official website the performance/power advantages of hybrid bonding over TSVs, but has also introduced a scalable hybrid bonding platform, and strengthened their industry position through investing in BESI (one of the leaders in hybrid bonding equipment) to enhance "process-equipment synergy". Currently, the global demand for AI computing infrastructure and enterprise-level storage chip is showing an exponential growth trend that the supply end cannot keep up with the intensity of demand, as clearly seen in the extremely strong performance data recently published by the "king of global chips" Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US). In the fourth quarter, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's gross margin breached 60%, net profit significantly exceeded expectations, and it is expected that the revenue growth rate for the full year of 2026 will be close to 30%, with the 2026 capital expenditure guidance significantly raised to $52-56 billion, both core indicators far exceeding market expectations. Additionally, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's management has upgraded the compound annual growth rate forecast for the revenue related to chip foundry business closely associated with AI from the original "mid-40%" to "mid-to-high 50%". This globally largest chip manufacturing giant's incredibly strong performance and future guidance have boosted recent chip stock prices, especially in storage chips and semiconductor equipment that have shown the strongest increases, as Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's capital expenditure expansion is primarily used for purchasing various high-end semiconductor equipment covering lithography, etching, film deposition, advanced packaging, testing, and other key chip manufacturing processes. Applied Materials (AMAT.US) has a ubiquitous presence in chip factories. Unlike ASML Holding NV ADR, which has always focused on the lithography field, the high-end equipment provided by Applied Materials in almost every step of chip manufacturing plays a critical role, with its product range covering important chip-making processes such as atomic layer deposition (ALD), chemical vapor deposition (CVD), physical vapor deposition (PVD), rapid thermal processing (RTP), chemical mechanical polishing (CMP), wafer etching, ion implantation, etc. Applied Materials has high-precision manufacturing equipment and customized solutions in the two major chiplet advanced packaging processes of wafer Hybrid Bonding and silicon Through Silicon Via (TSV), which are essential for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's 2.5D/3D level advanced packaging steps. Applied Materials in their latest analysis of technology pointed out that the HBM manufacturing process adds approximately 19 additional material engineering steps compared to traditional DRAM, and claims that their most advanced semiconductor equipment covers about 75% of these steps. Furthermore, they have also introduced a bonding system for advanced packaging/storage chip stacking, making HBM and advanced packaging manufacturing equipment likely to be the company's strong growth vectors in the mid-to-long term, and equipment for new chip manufacturing nodes such as GAA (gate-all-around)/backplane power delivery (BPD) will be the core drivers of the company's next strong growth cycle.