The PHLX Semiconductor Index is down 1.1%
Broadcom (AVGO 393.61, -24.21, -5.79%) the worst-performing S&P 500 component, though memory names continue to outperform following yesterday’s rally.
The iShares GS Software ETF (IGV 104.65, -1.63, -1.53%) is down similarly as Workday (WDAY 198.39, -8.06, -3.90%) and several other software names give back some of yesterday afternoon’s strength.
Applied Materials lower after earnings
Applied Materials (AMAT 508.60, -25.94, -4.85%) is one of the worst-performing S&P 500 names after delivering another strong quarter and raising its Semiconductor Systems outlook again, but the weaker reaction appears to reflect just how high expectations had become following the stock’s sharp run and strong results across the semi-cap equipment group.
Applied Materials now expects CY26 Semiconductor Systems growth to exceed its prior outlook of more than 30%, while management also expects another sequential increase in fiscal Q1, underscoring the strength of the current ramp. Gross margin is expected to remain roughly flat sequentially despite the revenue increase as Applied Materials absorbs hiring and other ramp costs. Still, the underlying demand picture remains very strong, particularly across DRAM/HBM, leading-edge foundry-logic, and advanced packaging, with longer customer visibility supporting confidence in another strong growth year in 2027.
Semiconductor systems: Revenue increased 26.5% yr/yr to a record $7.04 bln, supported by record foundry-logic and DRAM revenue, with gate-all-around and FinFET capacity additions supporting foundry-logic strength. Foundry, logic and other represented 67% of segment revenue, DRAM 26%, and flash 7%, implying growth of approximately 23%, 50%, and -2% yr/yr, respectively.
Drivers: AI is increasing equipment intensity across leading-edge foundry-logic, DRAM/HBM, and advanced packaging, which AMAT expects to account for roughly 80% of WFE growth in both 2026 and 2027. DRAM remains a standout, with management expecting a very significant increase in 2H26 as customers begin expanding cleanroom capacity.
Margins: Non-GAAP gross margin expanded 150 bps yr/yr and 40 bps sequentially to 50.4%, marking the 13th consecutive quarter of yr/yr expansion, helped by value-based pricing, a stronger product portfolio, and cost improvements. Semiconductor Systems gross margin increased 190 bps yr/yr to 55.4%. Q4 gross margin is expected to remain flat sequentially at 50.4%.
Demand/visibility: Management said most leading-edge logic and DRAM fabs are running at full capacity and customer visibility is longer than ever. Its largest customers are providing detailed rolling eight-quarter forecasts, with broader roadmap visibility extending roughly five years and some customer conversations reaching 2030.
Raised outlook: AMAT now expects CY26 Semiconductor Systems growth to exceed its prior outlook of more than 30%, marking another increase after raising its forecast in May from the initial more than 20% outlook provided in February. Q4 Semiconductor Systems revenue is expected around $7.9 bln, up 62% yr/yr, and management also expects another sequential increase in fiscal Q1.
Underlying demand picture remains very strong, particularly across DRAM/HBM, leading-edge foundry-logic, and advanced packaging, with longer customer visibility supporting confidence in another strong growth year in 2027.