Applied Materials: 50% Packaging Revenue Jump in 2026

Applied Materials set aggressive full-year 2026 targets in May, projecting 30%-plus chip equipment growth and 50%-plus advanced packaging revenue gains as AI infrastructure demand reshapes semiconductor production.

Lead

Applied Materials (AMAT), the world's largest semiconductor equipment maker by revenue, laid out its most ambitious annual growth targets in years during its May 15 earnings call, projecting calendar-year 2026 semiconductor equipment revenue expansion exceeding 30% and advanced packaging revenue growth of 50% to 60%. The guidance, issued alongside a record second-quarter fiscal 2026 result of $7.91 billion in revenue and earnings per share of $2.86—beating consensus by roughly 7%—reflects what the company describes as exceptional demand across leading-edge foundry logic, DRAM, and advanced packaging driven by accelerating AI infrastructure investment.

What Happened

Applied Materials reported record second-quarter fiscal 2026 results that supported the upward guidance. Net revenue of $7.91 billion rose 11% year over year, with gross margins reaching their highest level in more than 25 years. Non-GAAP earnings per share of $2.86 exceeded analyst forecasts of $2.68.

The company's forward guidance was equally notable. For full-calendar 2026, management projected semiconductor equipment systems revenue growth of more than 30%, with advanced packaging singled out as the fastest-growing sub-segment at 50% to 60% expansion. Packaging revenues are expected to surpass $2 billion for the year. Third-quarter fiscal 2026 guidance called for revenue of $8.95 billion, plus or minus $500 million, and non-GAAP EPS of $3.36, plus or minus $0.20—representing approximately 23% and 36% year-over-year growth, respectively.

More than 80% of the projected semiconductor equipment growth is concentrated in three areas: leading-edge foundry logic, DRAM, and advanced packaging—all of which sit at the heart of the AI compute supply chain.

AI and Technology Angle

The demand surge for advanced packaging equipment is inseparable from the AI hardware buildout. High-bandwidth memory (HBM), the stacked DRAM architecture required by every high-performance AI accelerator, demands three to four times more wafer starts per delivered bit than conventional DRAM. Applied Materials participates in approximately 75% of HBM materials engineering process steps, giving it outsized exposure as HBM stack counts increase from the current 12 layers toward 16 to 20 layers.

CoWoS (chip-on-wafer-on-substrate) capacity at TSMC, the primary bottleneck in AI GPU supply chains, is expanding to an estimated 120,000 to 140,000 wafers per month by end of 2026. That capacity addition directly drives demand for the deposition, etch, inspection, and planarization equipment that Applied Materials supplies. CoWoS bookings remain fully allocated through 2026 and into 2027.

Applied Materials is also investing $5 billion in a new Silicon Valley research facility—the Equipment and Process Innovation and Commercialization (EPIC) Center—scheduled to open in fall 2026. TSMC, SK Hynix, Micron, and Samsung have signed on as founding partners, embedding their engineers alongside Applied's R&D teams to co-develop next-generation processes for chip production and 3D integration.

Strategic Context

Applied Materials' packaging-heavy guidance positions it differently from peers in the cycle. KLA Corporation (KLAC) posted record quarterly revenue of $3.30 billion with operating margins of 41.3%. Lam Research (LRCX) guided Q3 FY2026 revenue to $5.70 billion on the strength of DRAM and advanced etch demand. ASML (ASML), which supplies lithography systems critical to leading-edge chip production, raised full-year 2026 revenue guidance after a record backlog of €38.8 billion in Q4 2025.

The broader semiconductor equipment sector is tracking toward more than 133% earnings growth in the second quarter of calendar 2026, with Applied Materials projected to outperform peers due to its concentration in advanced packaging—a segment where few competitors have comparable process breadth.

Market Reaction

Shares responded positively to the May guidance, with analyst price-target clusters shifting 17% to 29% higher following the earnings call. The company's valuation reflects elevated expectations: the Q3 fiscal 2026 report on August 13 will determine whether actual chip production volumes justify the guidance issued three months earlier.

Outlook

Applied Materials enters the second half of 2026 with above-consensus guidance, an expanding EPIC research ecosystem, and structural alignment with the two dominant chip production growth vectors—AI-accelerator demand and HBM capacity build. The 50%-plus advanced packaging revenue target for calendar 2026 is the most direct expression of that alignment. If AI infrastructure spending holds its current trajectory and HBM layer counts continue rising, the packaging growth figure may prove conservative rather than aggressive.

Mentioned tickers: AMAT, KLAC, LRCX, ASML, TSM