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Applied Materials to Outperform Wafer Fab Equipment Market Amid Strong Tailwinds, Morgan Stanley Says

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Applied Materials to Outperform Wafer Fab Equipment Market Amid Strong Tailwinds, Morgan Stanley Says

Applied Materials (AMAT) is expected to outperform the wafer fabrication equipment market by double-digit percentage points amid strong tailwinds, including memory demand, Morgan Stanley said in a note emailed toon Friday.

The semiconductor equipment maker late Thursday posted per-share adjusted earnings of $2.86 for the quarter ended April 26, up from $2.39 a year ago, while revenue advanced 11% to $7.91 billion. Both metrics topped Wall Street's estimates.

Morgan Stanley projects the firm to outperform the wafer fabrication equipment market by more than 10 percentage points, implying its "strongest" relative performance since 2020, when it outgrew the industry by 14 percentage points.

"The company is benefiting from strong tailwinds, including incremental 3nm wafer additions and unprecedented (dynamic random access memory) greenfield activity, while also demonstrating the ability to execute and meet expedite requests," Morgan Stanley wrote in its note.

Morgan Stanley believes leading-edge foundry logic, DRAM and advanced packaging will account for more than 80% of annual growth in wafer fabrication equipment spending, and expects these categories to continue driving gains on an absolute dollar basis. However, the focus could shift to how well the company is positioned to capture the next wave of chip spending into 2027, the note added.

Shares of the firm were down 3.9% in Friday's most recent premarket activity.

"While our preliminary 2027 forecast assumes AMAT grows broadly in line with WFE, the company's execution so far in 2026 is pushing us to look for more reasons to be incrementally positive rather than negative," Morgan Stanley said.

During a late Thursday earnings call with analysts, Chief Executive Gary Dickerson said the company now anticipates its semiconductor equipment business to grow more than 30% this calendar year. Previously, the company expected a gain of over 20%.

"Given the unprecedented demand environment, we are working closely with our customers on longer-range planning," Dickerson said on the call, according to a FactSet transcript. "With this improved visibility, we see continued growth across this extended planning horizon, into 2027 and beyond, and we are investing to support our customers' expansion plans."

For the ongoing quarter, Applied Materials expects adjusted EPS of $3.36 a share, plus or minus $0.20. Revenue is pegged at $8.95 billion, plus or minus $500 million. The Street is looking for non-GAAP EPS of $3.18 and sales of $8.62 billion.

Morgan Stanley lifted its price target on Applied Materials to $502 from $454 with an overweight rating on the stock.

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