Applied Materials: The $10 Billion Quarter Doesn't Explain the Drawdown

The framing circulating around Applied Materials is that it is on the verge of booking its first-ever $10 billion quarter, and that the open question is whether it makes the number this fall. That framing is already a step out of date. On August 13 the company did not predict a $10 billion quarter — it guided to one, setting the fourth-quarter midpoint at $10.25 billion, plus or minus $500 million, against a street expectation near $9.5 billion. The quarter ends in late October and the print lands in November.

So the milestone is not in doubt. The question the headline buries is the other one: Applied Materials just delivered the best quarter in its history — $9.12 billion of revenue, up 25% against the prior year and the largest sequential jump in the company's history — and the stock still sits about 38% below the $739 high it printed on June 5. A business guiding to a record quarter while its revenue growth is accelerating, not slowing, is being traded like one that is stalling.

That gap is the story. And it splits cleanly into two markets that the "$10 billion" label averages together.

The Revenue Curve Is a Supply Story, Not a Demand Story

First, what is actually pushing the number up. The $10 billion is not the product of a hot quarter of chip shipments or a spike in units sold. It is the consequence of a wafer-fab equipment upcycle — capital flowing into fabs to build more capacity and to migrate to new technology — concentrated in two places: high-bandwidth DRAM (HBM) and leading-edge logic.

The industry data is unambiguous. SEMI, the equipment makers' trade group, now projects global wafer-fab equipment sales to reach a record $143.9 billion in 2026, up 23% from $116.9 billion in 2025, with DRAM alone growing 39% this year. That is spending timed around a technology transition and a memory supply build, not a one-time order spike.

Applied's own revenue curve shows the same shape, bending upward off a flat base. The fiscal first quarter came in at $7.01 billion, down 2%. The second, $7.91 billion, up 11%. The third, $9.12 billion, up 25%. The fourth, guided $10.25 billion, up 51% against the $6.8 billion of a year earlier. CEO Gary Dickerson described a "gap between supply and demand" in DRAM as AI shifts from training to inference — a supplier-constraint framing, not a demand-panic framing. His biggest customers, the largest fabs on earth, are giving him eight-quarter forecasts and technology conversations that run out to 2030.

The distinction matters for durability. A revenue ramp driven by fab capex and a memory supply gap is a different object than a ramp driven by a strong quarter of shipments. The first tends to persist across a technology migration; the second mean-reverts. On the current evidence, this is the first kind.

The Drawdown Is the Real, Separate Problem: China

The second market is where the risk lives, and it is structural rather than cyclical. China is a shrinking and structurally impaired share of Applied's business, and the $10 billion quarter does nothing to reveal that.

China was 35% of the company's revenue a year ago. In the third quarter it was $2.5 billion, or 28%. Two forces are compressing it. The first is U.S. export control, which has already removed Applied from the most advanced Chinese capacity builds; management has quantified roughly $600 million of lost fiscal-2026 revenue from those restrictions alone. The second, and the newer one, is a Chinese government directive requiring fabs to use at least 50% domestically made equipment when adding new capacity, with projects generally denied regulatory approval if they fall short. That policy is built to feed a domestic supplier base — Naura, AMEC, and a roster of local toolmakers whose combined sales have grown from under $750 million in 2020 to about $7.6 billion in 2025.

This is the split. One market — HBM, leading-edge logic, and advanced packaging, located largely in the U.S., Europe, Japan, and Korea — is expanding on a multi-year capex plan that Applied is well positioned to serve. The other — mature-node China — is being carved up by policy and domestic substitution, and is now walled off on both sides: U.S. rules block it from the top end, and Chinese rules block the local makers from the rest. Management's stated expectation is that China revenue still grows in absolute dollars this calendar year. The November print is the first hard test of that promise.

What the 38% Drawdown Is Actually Pricing

So why did a record quarter fall 5% on the day it was reported, and why is the stock a third off its high?

Part of the drawdown is a sector event, not a company event. Semiconductor stocks rallied more than 100% into a June peak and then gave back as much as 29% as investors questioned whether the AI buildout can fund itself. Applied lost roughly 20% in a single month at the end of June. That leg of the move has nothing to do with Applied's own numbers.

The company-specific leg is the flat margin guide. Into a quarter where revenue is ramping 51% a year, Applied guided fourth-quarter gross margin to 50.4% — flat, not expanding. The CFO attributed it to ramping more than 1,500 new service engineers to support the systems buildout, not to pricing erosion. Investors reading that as a cost problem rather than a temporary investment drove much of the pop.

The valuation that has resulted is the part worth sitting with. After the decline, Applied trades around 39 times trailing earnings and about 37 times trailing EBITDA — the lowest multiple in its equipment peer group, even as its own revenue grew 25% in the third quarter and the company guides to a further 51% jump in the fourth.

Table 1. Trailing valuation, equipment peer group (as of Sept. 13, 2026)

Company	P/E (TTM)	EV/EBITDA (TTM)
Applied Materials	~39x	~37x
Lam Research	~51x	~43x
KLA	~49x	~39x
ASML	~53x	~41x
Teradyne	~52x	~40x

That is not a valuation argument by itself. A low multiple can simply be the market correctly pricing a risk that the "purer" peers do not carry. But it does mean that at $456, the market has already charged heavily for both the China split and the sector scare.

The remaining question is not whether Applied books $10 billion. It is whether the two markets keep behaving as two: whether HBM and 2-nanometer capex holds through 2027 on the upside, and whether China's absolute-dollar revenue actually grows, as management says it will, on the downside. If China stabilizes and the DRAM capex cycle continues, the cheapest multiple in the group starts to look like a discount to a supply-driven upcycle. If China's absolute revenue declines despite the directive, the multiple was right, and the $10 billion was the top.