Applied Materials Sees AI Chip Investment Driving ~40% Semiconductor Systems Growth This Year

Applied Materials' semiconductor systems revenue could grow about 40% this year as AI-driven chip investment continues to strengthen, according to JPMorgan analysis.

Analyst Harlan Sur maintains an Overweight rating on Applied Materials with a price target of $660. The comments follow a Thursday meeting with Mike Sullivan, corporate vice president and head of investor relations.

Applied Materials Sees Strengthening Chip Equipment Demand

Sullivan indicated that roughly 40% year-over-year growth in Applied Materials' semiconductor systems business this year appears achievable. Demand has strengthened over the past 13 weeks, though limited cleanroom space at customers could constrain further upside.

The company also plans to expand manufacturing capacity to support roughly double its recent system output by 2028. However, Sullivan emphasized the plan should not be viewed as a forecast for semiconductor equipment spending.

Instead, the company aims to have sufficient capacity to meet demand should industry expansion outpace expectations. The company has over 8 quarters of visibility through backlog and customer forecasts.

AI Drives Most of Industry Growth

Applied Materials has grown more confident in its 2027 wafer fabrication equipment outlook. Customer forecasts now extend into the first half of 2028, with some customers discussing plans through 2030.

AI-related markets, including advanced logic, DRAM, and advanced packaging, are driving roughly 80% of wafer fabrication equipment growth this year. Applied Materials expects a similar mix in 2027.

DRAM also represents a growing opportunity. The company estimates revenue opportunity per 100,000 new wafer starts per month could rise from about $6 billion at 6F² process to $6.5 billion at 4F², and $7.5 billion for 3D DRAM.

Meanwhile, Sullivan said value-based pricing is becoming increasingly important as the company seeks to capture a larger share of the economic benefits its equipment delivers through better chip performance, yield, and output.

AMAT stock performance: Applied Materials shares fell 0.67% to $492.85 at Thursday's data release.