Goldman Sachs: Applied Materials (AMAT.US) Q4 performance is steady, DRAM and advanced packaging drive growth will accelerate in 2027

The Zhitong Finance App learned that Goldman Sachs released a research report on November 12 stating that Applied Materials (AMAT.US) handed over a steady quarterly earnings report, and its performance guidelines were higher than Wall Street expectations. In the context of the recent overall correction in the sector, Goldman Sachs believes that investors' previous position layout was quite positive, and positive comments from peers have set a good tone for the WFE (fab equipment) market. Goldman Sachs believes that Applied Materials already has favorable conditions to increase its market share in the context of WFE's accelerated growth in 2027. Goldman Sachs maintained its “buy” rating for applied materials, but lowered its 12-month price target from $670 to $580, mainly due to a reduction in the valuation multiplier (price-earnings ratio dropped from 32 to 28 times).

Performance and guidance exceeded expectations, and gross margin performance was steady

Applied Materials' Q4 revenue was $10.41 billion, slightly exceeding market expectations of $10.33 billion; gross profit margin of 50.6%, slightly higher than market expectations of 50.5%; non-GAAP earnings per share (EPS) of $4.16, higher than market expectations of $4.07. Segment business was divided: DRAM revenue of US$2.64 billion, lower than market expectations; NAND revenue of US$720 million, far exceeding market expectations; OEM, logic and other business revenue of US$4.64 billion, lower than expected; and Applied Global Services (AGS) revenue of US$1.90 billion, slightly exceeding expectations.

Applied Materials' median revenue guidance for the first fiscal quarter was US$11.10 billion, higher than market expectations of US$10.88 billion; the median value of non-GAAP EPS guidance was US$4.35, higher than market expectations of US$4.23; gross margin guidance was 50.8%. Based on this, Goldman Sachs raised the company's 2026-2028 non-GAAP EPS forecast by an average of 3%.

WFE is expected to grow by more than 30% in 2027, and the company is expected to continue to outperform the market

Applied Materials expects the WFE market to grow by more than 30% in 2027, and is expected to continue to grow in 2028. This is in line with the outlook of Fanlin Group, Kelei and other peers. Management expects output to increase every quarter of fiscal year 2027, and the growth rate will outperform the market as in 2026 (Goldman Sachs expects WFE to grow by about 35% in 2026, while the applied materials systems business will grow by about 40%).

Goldman Sachs believes that applied materials have a high exposure of more than 60% in the field of deposition and etching, and as GAA logic and stacked storage expenses increase, their relative performance will be superior to their peers. Furthermore, the company's fastest-growing segments (advanced logic, DRAM, and advanced packaging) are its strong share areas, which are expected to contribute about 75% of total WFE growth by 2030.

Gross margin expansion and capacity planning

Q4 gross margin slightly exceeded expectations. The company indicated steady expansion over the next few quarters and reaffirmed the long-term gross margin target of around 54%. In the short term, fixed cost absorption and favorable pricing will be enough to offset the headwinds of rising support costs. In terms of production capacity, the company plans to double system output by 2028 and double manufacturing and laboratory production capacity by 2030. However, management also pointed out that the supply of some parts was tight, which moderately affected revenue growth in the next few quarters.

Technology evolution: DRAM and advanced packaging broaden market space

Management pointed out that the evolution of DRAM to 4F² and 3D DRAM will expand the Serviceable Market (SAM) for applied materials from $6 billion to $9.5 billion. Hybrid bonding technology is critical to 3D DRAM and advanced packaging, and application materials currently cover approximately 80% of the steps. In terms of advanced packaging, revenue is expected to grow by around 90% this calendar year.