How Applied Materials Stock Surges To $800

How Applied Materials Stock Surges To $800

Every AI chip has to be physically manufactured. And as chips get smaller and more complex, the machines required to build them get more specialized and more expensive. Applied Materials (NASDAQ:AMAT) makes those machines. As semiconductors shrink to sizes measured in nanometers, only a handful of companies have the tools to do it. AMAT is one of them, and increasingly, it's the one chipmakers can't work around. With the industry pouring record capital into new factories, AMAT's order books are filling up.

The stock has fared well, rising by over 150% over the last 12 months. The question is whether the stock can double from here. The numbers suggest that it might be possible.

The Demand Signal Is Real

The AI narrative isn't just sentiment. Hyperscalers are on track to spend over $600 billion in capital expenditures this year, and a bulk of that will flow toward semiconductors. TSMC committed $52 to 56 billion in capex for 2026, up from $40.9 billion in 2025. As the world's most important chip factory, making processors for Apple (AAPL) iPhones, Nvidia (NVDA) GPUs, and AI servers, when TSMC's equipment budget expands at this scale, AMAT's order pipeline fills directly in parallel.

AMAT's edge lies in materials engineering. As chips shrink to process nodes of 2 nm, conventional manufacturing starts to break down. AMAT's proprietary vacuum and deposition systems are among the only tools that work at that scale, making them functionally irreplaceable.

Their Gate-All-Around (GAA) toolset, a new transistor architecture that packs more computing power into less space, holds considerable market share. Layered on top is backside power delivery, one of the biggest chip design shifts in a decade, and AMAT holds a strong position there, too. Both transitions are happening simultaneously at the same advanced nodes, meaning AMAT gets paid twice for the same fab upgrade cycle. Moreover, tool qualification takes time, locking customers into long cycles. Once AMAT tools are written into a production process, they stay there.

The growth vectors extend further. Advanced Packaging revenue grew 90% year-over-year, with 80% of that backlog tied to High-Bandwidth Memory, the dense, fast memory stacks that make Nvidia's AI chips so powerful. HBM manufacturing involves many additional stacking and processing steps, and Applied Materials provides equipment for 15 of the 19 incremental steps, giving it exposure to a large mix of equipment spending in this segment.

Applied Global Services, often overlooked, is growing 15% YoY with a high subscription renewal rate across 55,000 installed tools worldwide. It is recurring revenue on a massive installed base, a stable, compounding floor that cushions the cyclical swings.

Marvell stock is also emerging as a big beneficiary of the AI wave. See how Marvell stock surges to $400.

How The Stock Can Double

Let's run the numbers. Applied Materials generated about $28.4 billion in revenue in 2025, and consensus points to about $31.6 billion in sales for FY '26, a growth of about 11%, rising another 21% to $38 billion by FY '27. However, if revenue actually picks up at a rate of about 30% annually over the next three years, then revenue could rise to over $60 billion by 2028.

Combine this robust revenue growth with the fact that Applied's adjusted net margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) are on an improving trajectory - they grew from 19.6% in FY '19 to 27% in FY '25 as the company witnessed better economies of scale and a more premium product mix. It's possible that margins could trend still higher to levels of about 35% by FY '29, as Applied focuses on new technologies such as Gate-All-Around (GAA) semiconductor equipment while better managing its costs. Applied is also seeing its services sales grow at a faster pace compared to products, and this could also help margins, as services contracts provide largely recurring revenues and are increasingly focused on more lucrative software. Applied has also been quite disciplined with its capital spending versus other players in the chip space, and this could also help its margins trend higher. At these margin levels, that could translate into about $21 billion in adjusted net income by 2028, up from about $7.5 billion in 2025. See AMAT valuation multiples.

Now, Applied currently trades at levels of around 45x trailing earnings. If Applied roughly triples its earnings between 2025 and 2028, the multiple would contract to levels of roughly 15x for the stock price to stay the same. But that is what investors are betting will not happen. If the P/E stands at about 30x levels, below the broader semiconductor industry, that would translate into a valuation of over $630 billion, which is over 1.8x current levels.

What about the time horizon for this high-return scenario? While our above example illustrates a roughly three-year time frame, in practice, it won't make much difference whether it takes three years or four, as long as Applied is on this revenue expansion trajectory with margins holding up; the stock price could respond similarly.

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