AMAT's Advanced DRAM Gains Traction: Will it Sustain its Momentum?

Applied Materials AMAT is experiencing a strong wave of momentum in the DRAM segment, as reported in the third quarter fiscal 2025 earnings call. With artificial intelligence and high-performance computing reshaping semiconductor demand, DRAM has emerged as a key growth engine for Applied Materials.

Applied Materials expects approximately 50% year-over-year revenue growth from leading-edge DRAM customers in fiscal 2025. This surge underscores how crucial DRAM has become in enabling AI workloads and high-bandwidth applications. The strength in DRAM has also propelled Applied Materials’ etch business to new records, surpassing $1 billion in quarterly revenues for the first time.

At the same time, customers are adopting new AMAT solutions to address the stringent requirements of high-performance compute memory. Among the most notable innovations are its next-generation gap fill system, an advanced CVD product, and the Pioneer dielectric patterning system. Both solutions are designed to improve efficiency and performance for advanced DRAM production.

Looking further ahead, Applied Materials sees additional opportunities in the 2027-2028 transition to vertical transistor (4F²) architectures, a major architectural shift in DRAM. Management believes this could translate into more than five points of incremental market share gain for the company.

The growth of high-bandwidth memory (HBM) is another powerful tailwind. With HBM expanding at a 30% to 40% annual pace and already consuming about 15% of total DRAM capacity, the demand pull for Applied Materials’ equipment continues to strengthen.

How Competitors Fare Against AMAT

Lam Research LRCX secured multiple critical etch wins at a major DRAM manufacturer with its new Akara etch system, which supports 3D DRAM architectures. This was supported by LRCX’s customer investments in DDR5, LPDDR5, and high-bandwidth memory. Additionally, Lam Research’s Aether dry-resist technology was recently selected as the production tool of record for a leading DRAM customer, securing a foothold in this high-growth segment.

ASML Holding ASML is experiencing strong demand from DRAM and logic customers, which are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. Additionally, ASML noted that multiple DRAM customers are adopting EUV lithography, which helps in shortening cycle time and lowering costs.

AMAT’s Price Performance, Valuation and Estimates

Shares of Applied Materials have gained 9.5% year to date compared with the Electronics - Semiconductors industry’s growth of 33.3%.

From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 4.88X, lower than the industry’s average of 9.3X.

The Zacks Consensus Estimate for Applied Materials’ fiscal 2025 earnings implies year-over-year growth of 9.48%. The estimate for fiscal 2026 has been revised upward in the past 30 days.

Applied Materials currently carries a Zacks Rank #4 (Sell).

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This article originally published on Zacks Investment Research (zacks.com).

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