Goldman Sachs: Applied Materials (AMAT.US) Posts Solid Q4 Results, DRAM and Advanced Packaging to Drive Accelerated Growth by 2027

According to Golden Ten Data APP, Goldman Sachs released a research report on November 12, stating that Applied Materials (AMAT.US) delivered a solid quarterly financial report, with its performance guidance exceeding Wall Street expectations. Against the backdrop of a recent overall sector pullback, Goldman Sachs believes that investors' previous positioning was relatively aggressive, and favorable comments from industry peers have set a positive tone for the WFE (Wafer Fab Equipment) market. Goldman Sachs believes that Applied Materials is well-positioned to increase its market share as WFE accelerates in growth toward 2027. Goldman Sachs maintains its “Buy” rating on Applied Materials, but lowers its 12-month target price from $670 to $580, mainly due to a reduction in the valuation multiple (from a P/E ratio of 32x to 28x).

Performance and guidance both beat expectations, with solid gross margin

Applied Materials Q4 revenue reached $10.41 billion, slightly surpassing the market expectation of $10.33 billion; gross margin was 50.6%, just above the market expectation of 50.5%; non-GAAP EPS was $4.16, higher than the market expectation of $4.07. There was a divergence among segment performances: DRAM revenue was $2.64 billion, below market expectations; NAND revenue was $720 million, far above market expectations; foundry, logic, and other business revenue was $4.64 billion, below expectations; Applied Global Services (AGS) revenue was $1.90 billion, slightly above expectations.

For the first fiscal quarter, Applied Materials’ revenue guidance midpoint is $11.10 billion, higher than the market expectation of $10.88 billion; non-GAAP EPS guidance midpoint is $4.35, higher than the market expectation of $4.23; gross margin guidance is 50.8%. Based on this, Goldman Sachs has raised its non-GAAP EPS forecast for 2026 to 2028 by an average of 3%.

WFE is expected to grow by over 30% in 2027, company likely to continue outperforming the market

Applied Materials expects the WFE market to grow by over 30% in 2027, with continued growth likely in 2028, in line with the outlook from peers like Lam Research and KLA. Management anticipates an increase in output every quarter of fiscal year 2027, with growth rates continuing to outpace the market as in 2026 (Goldman Sachs expects 2026 WFE growth of around 35%, while Applied Materials’ system business is projected to grow by about 40%).

Goldman Sachs believes that Applied Materials has an exposure of over 60% in the deposition and etching sectors; as spending on GAA logic and stacked storage increases, its relative performance will outshine competitors. In addition, the company’s fastest-growing segments (advanced logic, DRAM, and advanced packaging)—its areas of strong market share—are expected to account for about 75% of total WFE growth by 2030.

Gross margin expansion and capacity planning

Q4 gross margin slightly beat expectations, and the company has guided for steady expansion over the next several quarters, reiterating its long-term gross margin target of around 54%. In the short term, absorption of fixed costs and favorable pricing are sufficient to offset headwinds from rising support costs. In terms of capacity, the company plans to double system output by 2028 and double manufacturing and laboratory capacity by 2030. However, management also noted that the supply of some components remains tight, which will moderately affect revenue growth over the next several quarters.

Technological evolution: DRAM and advanced packaging expand market space

Management pointed out that the evolution of DRAM toward 4F² and 3D DRAM will expand Applied Materials’ Serviceable Addressable Market (SAM) from $6 billion to $9.5 billion. Hybrid bonding technology is critical for both 3D DRAM and advanced packaging, and Applied Materials currently covers about 80% of the steps involved. In advanced packaging, revenue is expected to grow by about 90% this calendar year.