Will DRAM Strength Drive Applied Materials' Next Growth Phase?

Applied Materials AMAT is seeing improving conditions in the Dynamic Random Access Memory (DRAM) market, which could support its next phase of growth. While overall spending on semiconductor equipment was mixed in fiscal 2025, DRAM remained one of the steadier areas for the company.

During fiscal 2025, Applied Materials improved its position in the DRAM market, especially with leading-edge customers. In the fourth quarter of fiscal 2025, management stated that revenues from these DRAM customers grew by more than 50% over the past four fiscal quarters. This bodes well for the company's prospects because leading-edge customers are usually the first to increase spending when new memory technologies move toward production. 

Additionally, DRAM demand is becoming more closely tied to artificial intelligence (AI). AI servers need more memory and faster memory, including high-bandwidth memory (HBM). As AI workloads increase in data centers, memory content per server is going up. This is pushing memory makers to invest more in advanced DRAM manufacturing, which supports demand for Applied Materials’ tools.

Looking ahead, management expects DRAM and HBM to be among the fastest-growing parts of semiconductor equipment spending in 2026. This shift in spending works in Applied Materials’ favor. The company has strong process technology in DRAM and provides tools that help customers improve yields, handle more complex designs, and reduce manufacturing costs.

Overall, the above-mentioned factors demonstrate that if DRAM spending keeps improving and AI-related memory demand continues to grow, DRAM could play a key role in supporting Applied Materials’ growth in the coming years.

How Competitors Fare Against AMAT

Companies like Lam Research LRCX and ASML Holdings ASML are leading players in the DRAM, Logic and etching space.

Lam Research’s DRAM and Non-Volatile Memory products are gaining traction on the back of AI. Lam Research is also winning multiple clients as DRAM manufacturers are using its latest conductor etch tool, Akara.

ASML Holdings’ top line is driven by its DRAM and logic customers, who are ramping leading-edge nodes using ASML’s NXE:3800E EUV systems. ASML also benefits from rising AI infrastructure spending, which is boosting demand for advanced logic and DRAM.

AMAT’s Price Performance, Valuation and Estimates

Shares of Applied Materials have gained 44.3% in the past six months compared with the Electronics - Semiconductors industry’s growth of 25.8%.

AMAT 6-Month Performance Chart

From a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 6.99X, higher than the industry’s average of 6.42X.

AMAT Forward 12 Month (P/S) Valuation Chart

The Zacks Consensus Estimate for Applied Materials’ fiscal 2026 and 2027 earnings implies year-over-year growth of 1.4% and 17.9%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward in the past seven days.

Applied Materials currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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