Applied Materials (AMAT) Q4 2026 earnings review
Applied Materials raises its equipment plan while unpaid bills climb
Applied Materials, the largest US maker of chipmaking machinery, turned artificial-intelligence factory orders into record revenue while returning cash it had held back all year. Fourth-quarter sales rose 53% from a year ago to $10.4 billion against a depressed comparison period, and profit per share excluding one-offs nearly doubled. Chief executive Gary Dickerson raised his calendar 2026 equipment growth target past 40%, which by our math requires first-quarter equipment sales to climb again as total revenue reaches $11.1 billion.
| Revenue | $10.41B +53% from a year ago against a low base |
|---|---|
| Profit per share, excluding one-offs | $4.16 +92% from a year ago |
| Share buybacks in Q4 | $2.00B up from $440M last quarter |
| Q1 revenue outlook | $11.1B middle of the range: +58% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because the first-quarter plan extends the equipment boom instead of pausing after a big fourth quarter, and finance chief Brice Hill backed it with a $2.0 billion stock buyback that resolved doubts about shareholder payouts. One caution: unpaid customer bills jumped by $1.3 billion in the quarter, outpacing customer deposits and holding annual free cash flow growth to 9%.
The question now is whether customer cleanroom construction can absorb the company's expanding factory payroll and keep margins above 35% through 2027. Optimists point to rising customer deposits and 15 partners inside the new Silicon Valley research center; skeptics point to 5,000 workers hired in a year and a 25% revenue reliance on China. First-quarter equipment deliveries and cash collections will show which side is right.
🐂 Bull Case
Equipment Target Raised A Third Time
Semiconductor Systems is the division that builds chipmaking machines, and it generates three-quarters of total revenue. Chief executive Gary Dickerson said the company is "on track to grow our Semiconductor Systems business more than 40 percent in our calendar 2026", which runs through January 2027. That is the third time this year he has raised the target, up from 20% in February and 30% in May.
- Q4 equipment revenue: $8.00 billion, up 63.9% from a year ago against a low comparison base
- DRAM memory share of equipment sales: 33%, up from 28% a year ago
- Q1 equipment floor implied by the 40% calendar target: $8.38 billion by our math, up 63.0% from a year ago
The new 40% floor matters because the previous 30% target had grown stale and allowed for a first-quarter drop. By our math, clearing 40% for the calendar year requires at least $8.38 billion of equipment sales next quarter, or another $382 million increase from the fourth quarter's record level.
What to watch: Semiconductor Systems revenue in the first quarter. A result above $8.38 billion will confirm that customers are opening cleanroom space fast enough to keep quarterly deliveries rising.
Higher Volume Lifted Margins Past Display Drag
Skeptics worried that gross margin would stall at 50.4% because the company was shipping more lower-margin display equipment and hiring factory staff. Instead, gross margin excluding one-offs reached 50.6%, up 2.5 percentage points from a year ago and 0.2 points above the company's target. The cost of making the products fell by 2.4 percentage points of revenue as factory volume rose.
Operating margin excluding one-offs expanded even faster, rising 6.7 percentage points from a year ago to 35.3%. Research and development spending grew in dollars, but fell by 2.6 percentage points of revenue to 10.8%. Selling and administrative overhead fell by 2.2 points of revenue, so revenue growth flowed straight into operating profit.
What to watch: first-quarter gross margin excluding one-offs once the company gives its next quarterly breakdown. Holding above 50.6% during a 14-week quarter with higher employee expenses will show that pricing power outweighs factory expansion costs.
A $2 Billion Buyback Answered The Cash Question
Applied Materials pledges to return 80% to 100% of free cash flow to shareholders over time. During the first three quarters of fiscal 2026, it slowed stock buybacks to between $337 million and $440 million a quarter and paid out only 67% of free cash flow.
In the fourth quarter, finance chief Brice Hill deployed $2.42 billion in total payouts, "including the largest quarterly share buyback in more than eight years" at $2.00 billion. That single quarter returned 92.6% of free cash flow by our math and lifted the full-year payout to 76.6%, right at the lower edge of the multi-year target.
What to watch: first-quarter share repurchases and diluted share count. Because the fourth-quarter buying happened late in the period, the diluted share count stayed at 798 million, so the per-share benefit should appear next quarter.
🐻 Bear Case
Unpaid Bills Outpaced Customer Down Payments
Contract liabilities — upfront deposits and advance billings from customers for machines not yet delivered — serve as the main forward indicator for equipment demand. A rise supports the growth case, while a rise in unpaid customer bills cuts the other way. This quarter, contract liabilities rose by $314 million to $3.59 billion, up 39.7% from a year ago.
- Contract liabilities: $3.59 billion, up $314 million from last quarter
- Accounts receivable (unpaid customer bills): $9.00 billion, up $1.31 billion from last quarter and up 73.5% from a year ago
- Working capital cash drain in FY26: $1.94 billion, compared with $200 million in FY25
The jump in unpaid bills cuts against the story that customer deposits are funding the boom. Because accounts receivable grew by $1.31 billion in the quarter while revenue rose by $1.29 billion, much of the advance billing sits in receivables rather than cash. That working-capital tie-up held annual free cash flow growth to 8.7% even as profit excluding one-offs rose 35.4%.
What to watch: accounts receivable and days of sales outstanding in the annual report. If receivables keep growing faster than the 58.3% revenue growth planned for the first quarter, cash conversion will keep lagging profit.
Rapid Hiring Expands Fixed Costs For The Cycle
Dickerson said demand for artificial-intelligence chips is "putting us in a great position for multi-year revenue and profit growth", and the company is building factories to double its machine output by 2028. That buildout is driving the bull case on volume, but it also locks in higher fixed costs if customer cleanroom construction slows.
The company ended the year with 41,500 regular full-time employees, adding 2,600 people in the fourth quarter alone and 5,000 over the past year, a 13.7% expansion. Capital spending reached $2.67 billion for the year, lifting net property, plant and equipment by 27.0% to $5.85 billion. Those extra workers and buildings will raise depreciation and payroll into 2027.
What to watch: operating expenses excluding one-offs in the first quarter, which includes an extra 14th calendar week. A sharp rise in baseline quarterly spending will raise the revenue level the company needs to defend its 35.3% operating margin.
Risks this quarter didn't answer
Three standing concerns and two product growth targets cannot be checked from the fourth-quarter press release alone.
- China and export controls: sales in China rose 34.5% from a year ago to $2.64 billion (25% of revenue), and the release gives no update on the three-year export-compliance audit required by its US government settlement.
- Customer concentration: two chipmakers accounted for 34% of revenue over the first nine months; the annual 10-K filing will show full-year concentration.
- Advanced packaging and chip-inspection sales: the release did not report dollar totals for the calendar 2026 targets of 70% packaging growth and 50% inspection growth; the earnings call or first-quarter results will test both.
👓 Other Themes
EPIC Center Opens With Intel And Kioxia
Applied Materials unveiled its EPIC Center in Silicon Valley, a research building where chipmakers work inside the company's labs for "parallel rather than sequential development of materials, equipment and process technology". Intel, Kioxia, Besi and UCLA joined, bringing total partners to 15. The US group also agreed to raise its stake in packaging partner Besi to 20% and launched the VeritySEM 20 microscope to "address the patterning control challenges of high-NA EUV".
💲 Other KPIs
Service and spare-parts revenue grew 25.9% from a year ago, speeding up from 15.2% in Q1, 17.3% in Q2 and 21.7% in Q3. It topped the company's $1.84 billion target by $56 million and lifted segment operating margin by 1.7 percentage points to 30.5%.
Stockpiles of parts and unfinished machines rose 16.5% from a year ago and 5.0% from last quarter. Inventory growth stayed well below the 53.1% jump in quarterly sales, showing that factories shipped machines faster than raw materials accumulated.
Paper losses on public stock holdings cut reported net income by $653 million ($0.68 per share), partly offset by $18 million in realized gains and dividends. Without those investment swings, reported profit per share of $3.40 would have been $4.10 by our math, close to the $4.16 figure excluding one-offs.
🔮 Guidance
Held. The plan matches earlier statements that first-quarter revenue would rise from the fourth quarter, putting the middle of the range up 58.3% from a year ago and 6.6% from Q4. The comparison quarter had 13 weeks against 14 weeks in Q1 FY27. Applied Materials has topped its revenue midpoint in every quarter of fiscal 2026 by an average of 2.3%; if the pattern holds, revenue would reach $11.35 billion by our math.
New. The outlook calls for profit per share excluding one-offs to grow 82.8% from a year ago and 4.6% from the fourth quarter at the middle of the range, including a $0.04 tax benefit. The chip-equipment maker beat its profit midpoint in all four quarters of fiscal 2026 by an average of 6.3%; if the pattern holds, first-quarter profit would reach $4.62 per share by our math.
Raised. Dickerson lifted the calendar 2026 equipment growth target for a third time: from over 20% in Q1, to over 30% in Q2, and now to over 40% (+10 points each time). Because calendar 2026 ends with Q1 FY27, by our math the new target leaves at least $8.38 billion for Q1 equipment revenue, up 63.0% from a year ago and up 4.8% from Q4.
❓ Key Questions
Why did unpaid bills grow four times faster than deposits?
Accounts receivable rose by $1.31 billion in the fourth quarter while customer contract liabilities rose by $314 million. How much of the contract-liability balance is billed but uncollected, and when will those receivables turn into cash?
What are the dollar sales for advanced packaging and inspection?
Management previously targeted more than 70% growth in advanced packaging and 50% in chip inspection for calendar 2026, but the release gave no figures. What is the dollar base for each line heading into 2027?
What is the gross margin and cost plan for Q1?
The press release gave first-quarter targets for revenue and profit per share, but omitted gross margin and operating expense targets ahead of the call. How much will the extra 14th week and the new EPIC Center add to quarterly costs?
How will the 20% Besi stake change packaging sales?
The company signed an agreement to increase its shareholding in hybrid-bonding partner BE Semiconductor Industries to about 20%. How much cash will that purchase require, and does it bring commercial exclusivity?