Summit upgrades Applied Materials to Buy on AI-driven WFE upside

Investing.com -- Brokerage Summit Insights has upgraded Applied Materials Inc (NASDAQ: AMAT) to Buy, citing expected upside in wafer fab equipment (WFE) spending through the second half of 2026 (2H26).

"We expect technology transitions across AI, smartphones, PCs, and IoT to drive outsized logic/foundry and DRAM spending in 2026," Summit analyst Kinngai Chan said in a Thursday industry report.

While he acknowledges some downside risk in mainstream node spending, Chan believes this is manageable given Applied Materials’ exposure to higher-growth WFE segments.

Summit’s channel checks indicate AI-related strength in WFE spending should persist through the first half of 2027, positioning Applied Materials and the broader semicap sector to outperform semiconductor peers in 2026, Chan said.

The upgrade comes following Applied Materials’ strong quarterly report, which sent its shares soaring more than 10% in premarket trading Friday.

The company’s revenue rose 3% quarter-on-quarter to $7.01 billion, above the $6.85 billion consensus. Silicon Systems Group sales increased 5.4% sequentially to $5.14 billion, supported by stronger DRAM shipments.

DRAM shipments jumped 28% to $1.75 billion as customers prepared for HBM4 and higher-density DDR5 ramps, while NAND-related shipments fell 30% to $206 million as customers digested prior tool purchases. Non-GAAP gross margin expanded 100 basis points to 49.1%.

For the April quarter, Applied expects sales to grow 9% sequentially to $7.65 billion, ahead of the $7.01 billion consensus. Silicon Systems Group sales are projected to rise 13% to $5.8 billion on AI-related strength in foundry/logic and DRAM, with non-GAAP gross margin seen expanding to 49.3%.

The company expects 2026 growth to come mainly from advanced logic/foundry, DRAM, and advanced packaging, driven primarily by AI demand, with Silicon Systems Group revenue projected to grow at least 20% year-on-year and strengthen in the second half of 2026 .

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