Applied Materials sees strong growth from AI demand and memory scarcity

Strong Performance Driven by AI and Memory Demand

Applied Materials, a leading player in the semiconductor equipment industry, has announced that its second-quarter revenue and profit are expected to exceed market expectations. This optimism is based on the anticipated surge in demand for AI processors and a global shortage of memory chips, which are expected to boost sales of its chipmaking equipment.

The rapid expansion of artificial intelligence infrastructure has significantly contributed to this outlook. This development has absorbed a large portion of the world's memory chip supply, increasing production capacity and further supporting the company's sales growth.

In response to these positive forecasts, Applied Materials' shares experienced a notable rise of over 12% during extended trading. Shares of its competitors, such as Lam Research and KLA, also saw gains of nearly 3% each, as the overall sentiment in the sector improved.

Financial Expectations and Industry Trends

According to data compiled by LSEG, Applied Materials anticipates second-quarter sales of approximately $7.65 billion, with a possible variance of $500 million. This is significantly higher than the estimated $7.01 billion. The company also projects an adjusted profit of around $2.64 per share for the quarter, with a potential fluctuation of 20 cents. This compares to an estimated $2.28 per share from analysts.

CEO Gary Dickerson highlighted that these results are driven by the acceleration of investments in AI computing across the industry. He emphasized that the demand for more powerful and energy-efficient chips is fueling high growth rates in areas such as leading-edge logic, high-bandwidth memory (HBM), and advanced packaging.

Focus on High-Bandwidth Memory

High-bandwidth memory (HBM) is a type of advanced memory chip that is created by stacking layers of dynamic random access memory (DRAM) on top of each other. These chips are often used alongside high-cost AI processors, such as those produced by Nvidia.

During a post-earnings call, Dickerson mentioned that Applied Materials expects DRAM to be its fastest-growing segment in 2026. This growth will be supported by 3D chiplet stacking, a technique widely used in the production of AI processors.

Strong First-Quarter Results

In the first quarter, Applied Materials reported revenue of $7.01 billion, surpassing the estimated $6.87 billion. The finance chief, Brice Hill, noted during the call that the quarter ended January 25 included record DRAM sales compared to the previous year.

The company also reported a first-quarter profit of $2.38 per share, excluding certain items. Analysts had predicted a profit of $2.20 per share, indicating that the company outperformed expectations.

Looking Ahead

With the ongoing demand for AI infrastructure and the current memory shortage, Applied Materials is well-positioned to capitalize on these trends. The company's strategic focus on high-bandwidth memory and 3D chiplet stacking is likely to play a crucial role in its future growth. As the semiconductor industry continues to evolve, Applied Materials remains at the forefront, driving innovation and meeting the rising demand for advanced technology solutions.