AMAT Q4 Deep Dive: AI Demand and Advanced Packaging Lead Guidance Upside

Semiconductor machinery manufacturer Applied Materials (NASDAQ:AMAT) announced better-than-expected revenue in Q4 CY2025, but sales fell by 2.1% year on year to $7.01 billion. On top of that, next quarter’s revenue guidance ($7.65 billion at the midpoint) was surprisingly good and 8.1% above what analysts were expecting. Its non-GAAP profit of $2.38 per share was 7.8% above analysts’ consensus estimates.

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StockStory’s Take

Applied Materials closed the fourth quarter with better-than-expected results, as the market responded positively to strength in its AI, foundry-logic, and memory segments. Management attributed these results to ongoing customer investment in advanced node transitions and 3D scaling, as well as operational execution in supply chain and cost controls. CEO Gary Dickerson highlighted that “customers continue to accelerate node migrations and new 3D scaling approaches,” expanding opportunities for Applied Materials’ materials engineering portfolio. Investments in research and development and capacity expansion also supported the quarter’s outcomes.

Looking ahead, management’s outlook is shaped by robust AI-driven demand, continued momentum in leading-edge foundry-logic, and advanced packaging technologies. The company expects sustained wafer fabrication equipment (WFE) spending, with CEO Gary Dickerson noting “continued investment in leading-edge foundry-logic and in advanced packaging, as well as improving trends in DRAM and NAND.” CFO Brice Hill emphasized that operational discipline and supply chain improvements will remain central, while ongoing investments in R&D and customer enablement are expected to support the company’s long-term growth trajectory.

Key Insights from Management’s Remarks

Management pointed to strong AI-related demand, advanced packaging, and execution on key product lines as the main factors behind the quarter’s outcomes and the upbeat guidance.

• AI-driven customer investments: Management observed that customer demand for AI and high-performance computing drove sustained orders, particularly in leading-edge foundry-logic and advanced memory (DRAM and NAND).
• Advanced packaging momentum: CEO Gary Dickerson cited strong growth in advanced packaging, enabled by heterogeneous integration and AI, where Applied Materials’ differentiated toolset for wafer-level packaging and hybrid bonding is gaining traction.
• Operational execution and supply chain: CFO Brice Hill emphasized improvements in supply chain resiliency, including expanded capacity and improved lead times, which helped fulfill backlog and support customer needs.
• Services expansion: The company reported growth in services revenue, aided by a larger installed base, higher attachment rates for performance-based agreements, and increased automation and remote support capabilities.
• Metrology and inspection growth: Management highlighted rising demand for metrology and inspection products, particularly as process complexity increases at advanced nodes, with e-beam and optical platforms addressing new use cases in logic and memory.

Drivers of Future Performance

Applied Materials’ guidance is underpinned by ongoing AI demand, customer technology migrations, and operational improvements across its global footprint.

• Continued AI and HPC demand: Management expects demand for wafer fabrication equipment to remain strong, driven by ongoing investments in artificial intelligence, high-performance computing, and memory, especially DRAM related to high-bandwidth memory (HBM).
• Advanced packaging and node transitions: The company sees growth opportunities in advanced packaging—specifically wafer-level packaging, hybrid bonding, and backside power—as customers pursue new device architectures. CEO Gary Dickerson noted that Applied’s broad materials engineering capabilities position it well for these transitions.
• Operational leverage and R&D focus: CFO Brice Hill stated that operating expenses would grow at a slower pace than revenue, supporting margin expansion. The company plans to maintain discipline on overhead while prioritizing research and development, particularly for emerging process technologies and expanded metrology/inspection capabilities.

Catalysts in Upcoming Quarters

Moving forward, our analysts are watching (1) the pace of AI-driven equipment orders and whether demand for advanced packaging and memory (particularly DRAM and HBM) remains resilient, (2) the company’s execution on capacity expansion and supply chain lead-time improvements, and (3) incremental growth in services and metrology/inspection as process complexity increases. Progress on R&D for new process nodes and compliance with evolving export controls will also be critical signposts.

Applied Materials currently trades at $351.56, up from $328.39 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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