Applied Materials forecast another record quarter, helped by an extra week on the calendar

Applied Materials, one of the world's largest makers of the machines that build computer chips, reported record sales on Thursday evening and forecast another record quarter. For investors, the question is how much longer the AI building boom can keep lifting its suppliers' profits, and how much of that is already in the share price.

Revenue for the quarter ended October 25 rose 53% from a year earlier to $10.41 billion. Adjusted earnings per share nearly doubled to $4.16. Both beat analyst forecasts of about $10.3 billion and $4.06, according to Zacks estimates cited by Yahoo Finance.

The company forecast $11.1 billion in revenue for the quarter ending in January, give or take $500 million, and $4.35 in adjusted earnings per share. Analysts had expected about $10.84 billion and $4.25, according to TipRanks.

The stock barely moved. Shares fell 3.6% in regular trading to $380.95, then rose modestly after hours. They sit near half their 52-week high of about $740, reached in late June, even though analysts' profit forecasts have kept rising since then.

An extra week in the forecast

The January quarter has 14 weeks instead of the usual 13, a quirk of Applied's fiscal calendar. That extra week inflates the headline comparison.

Our own per-week calculation, not a company figure, shows the effect. By our math, the quarter just reported brought in roughly $801 million a week, and the midpoint of the new forecast works out to about $793 million a week, essentially flat. Adjusted earnings per share per week slip slightly on the same arithmetic.

That does not mean demand is fading. Management says shipments are limited by how fast customers can finish factory space, not by a lack of orders. Chief financial officer Brice Hill told analysts that clean room capacity, the ultra-clean buildings where chips are made, "remains a gating factor" for how much equipment the industry can take. He said Applied is tracking more than 20 new factory start-ups and expansions in 2027 alone.

Still, management said the forecast implies 58% growth from a year earlier at the midpoint. Investors comparing that figure with past quarters should know that part of it is one extra week of sales.

Memory chips take a bigger share

The business is tilting toward memory. DRAM, the main working memory in computers and AI servers, made up 33% of Applied's chip-equipment sales in the quarter, up from 28% a year earlier. Equipment for processors and contract chipmakers made up 58%.

Advanced packaging, the step that stacks and wires chips together, is growing fastest. Applied told analysts it expects that business to rise about 90% in calendar 2026. Much of the growth comes from high-bandwidth memory, the stacked memory that sits next to AI processors.

China is shrinking as a share of sales. It was 25% of revenue in the quarter, down from 29% a year earlier. Hill said China will likely grow more slowly than AI-related markets in 2027 and probably stay below a quarter of the business.

Chief executive Gary Dickerson said he expects industry spending on chip-making equipment to rise more than 30% in 2027, calling it another record year for the market and for Applied. He said he sees no sign that customers worry about expanding too quickly. Those are company forecasts. Applied gave no such spending forecast at its October investor event.

What investors are weighing

The case for the stock is that profit estimates rose while the price fell. Analysts' fiscal 2027 profit estimate climbed from about $16.40 a share at the end of June to about $18.60, according to an analysis by TIKR. Over the same period, the share price as a multiple of expected earnings fell from about 49 to about 22, close to its five-year average.

Cash backs up the numbers. Free cash flow, the cash left after capital spending, hit a record $2.62 billion in the quarter. Applied returned $2.42 billion to shareholders through buybacks and dividends.

The risks are concentrated. Two customers accounted for 34% of revenue in the first nine months of the fiscal year, TIKR noted. A pause by any big chipmaker would hit hard. Chip-equipment spending has swung sharply before: in fiscal 2019, after the previous boom ended, Applied's revenue fell 13%, TIKR noted.

Reported profit also trailed the adjusted figure. Under standard accounting, earnings were $3.40 a share, not $4.16. The largest gap was a $653 million paper loss on Applied's stakes in other companies, which it leaves out of adjusted results.

Insiders and analysts are sending different signals. Insiders sold about $180.6 million of shares over the past year and bought none, according to GuruFocus. Analysts remain bullish: their average price target of about $649 implies roughly 70% upside, according to TipRanks.

For companies buying AI computing capacity, the message is that Applied expects chip factory construction to stay strong into 2027, limited mainly by factory space rather than demand. For investors, Applied's results show demand intact. The extra week is a reminder to read the growth rate closely.