Applied Materials Gains From Rising Operating Leverage: What's Ahead?

Applied Materials’ AMAT operating leverage improved significantly in the second quarter of fiscal 2026 as strong AI-driven demand boosted revenues faster than operating expenses. The company delivered record revenues of $7.91 billion, while non-GAAP operating margin expanded 140 basis points year over year to 32.1%.  Management highlighted that productivity tools, AI adoption across operations and manufacturing efficiencies helped the company increase revenues faster than the expenses. AMAT also noted that value-based pricing, cost innovations and scaling of advanced products helped gross margin reach 50%, its highest level in over 25 years.The high-value semiconductor technologies market carries higher profitability because customers prioritize performance, power efficiency and manufacturing precision over cost alone. AMAT’s differentiated products, including Trillium ALD and Precision PECVD systems, support premium pricing and stronger margins.The company also highlighted that gross margin improvement has been supported by value-based pricing from its most differentiated products, coupled with ongoing manufacturing cost innovations.In addition, Applied Global Services is contributing to margin stability and recurring profitability. This segment delivered record revenue growth of 17% year over year, benefiting from higher fab utilization and AI-powered service offerings. The company’s AIx platform now connects more than 35,000 chambers, enhancing predictive maintenance and productivity.How Competitors Fare Against AMATLam 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. However, AMAT offers a broad range of WFE products that do not compete directly with ASML and Lam Research, making it a stock worth holding.AMAT’s Price Performance, Valuation and EstimatesShares of Applied Materials have surged 58.3% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 35.3%.AMAT YTD Performance ChartImage Source: Zacks Investment ResearchFrom a valuation standpoint, Applied Materials trades at a forward price-to-sales ratio of 9.13X, higher than the industry’s average of 8.99X.AMAT Forward 12-Month (P/S) Valuation ChartImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for Applied Materials’ fiscal 2026 and 2027 earnings implies year-over-year growth of 19.8% and 27.7%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward in the past seven days.Image Source: Zacks Investment ResearchApplied Materials currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks