Shares of Applied Materials surged 7.4% in a single session to reach new all-time highs near $490, defying a broader market selloff and cementing the chip equipment giant's status as one of the most aggressive bets on the AI infrastructure buildout. The rally extended a run of more than 150% over the past year, but for shareholders, the question is whether the stock's pricing already captures years of growth.
A Record Quarter That Raised the Bar
Applied reported Q2 non-GAAP earnings of $2.86 per share, beating forecasts of $2.68 by nearly 7%, on record revenue of $7.91 billion that topped expectations of $7.68 billion.
Management raised its calendar-2026 semiconductor equipment growth forecast to more than 30%, up from a prior view of over 20%. That upward revision signals customers are accelerating factory orders, not just talking about future plans.
AI Spending Is Flowing Into the Picks-and-Shovels Layer
The company's advanced packaging business — the technology that stacks and connects chips inside AI servers — is growing more than 50% this year to multiple billions of dollars.
AI-driven demand for high-bandwidth memory lifted DRAM's share of the chip-systems business to 29%, while foundry and logic held 67%. Translation: almost every dollar of growth is coming from AI-related work.
Guidance Blew Past Wall Street
Applied projected Q3 revenue of roughly $8.95 billion, well above analyst estimates of $8.09 billion.
Deutsche Bank, Wolfe Research, and others responded by lifting price targets to as high as $575. But momentum can cut both ways — the stock now trades at a price-to-earnings ratio of roughly 46x, some 138% above its ten-year average , pricing in perfection.
China Restrictions Remain the Wildcard
Export controls have already hit roughly 10% of Applied's business, and China now represents the mid-20% range of its equipment and services revenue.
The company paid a $253 million settlement to resolve a U.S. government inquiry into past China shipments. Any escalation in trade restrictions could erase billions in addressable demand overnight — a risk the current valuation barely discounts.
Applied Materials is delivering one of the strongest growth periods in its history. But at nearly double its historical valuation, the stock is priced for an AI supercycle with no speed bumps — and geopolitics may have other plans.