Applied Materials Is Silently Powering the AI Boom. Here's Why.

Nvidia and Micron Technology have drawn significant investor attention as they power AI infrastructure, but savvy investors may also want to turn some of that attention to Applied Materials (NASDAQ: AMAT). Applied Materials doesn't make chips, but it designs vital equipment that chipmakers use to create their chips.

In short, Applied Materials is an enabler of chipmakers, but that's not the only thing you need to know when deciding if the stock is a good buying opportunity.

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A star-studded customer list

Applied Materials isn't the only company that produces equipment chipmakers need to create their chips, but it is the largest semiconductor equipment provider in the U.S.

The company's fiscal 2026 second-quarter results highlighted several customer partnerships that suggest accelerated revenue growth is on the way. In its release, Applied Materials mentioned agreements and partnerships with Taiwan Semiconductor Manufacturing, Micron, and SK Hynix. All of these companies have been working together for years, and the parabolic revenue growth they are seeing should translate into higher revenue growth for Applied Materials.

The company delivered 11% year-over-year revenue growth in its fiscal 2026 second quarter, which ended April 26, but it expects at least 30% revenue growth for its semiconductor business in calendar 2026. Semiconductor revenue made up $5.965 billion of the company's $7.91 billion of its second-quarter revenue, which comes to 75% of total revenue.

That segment only had 10.4% year-over-year revenue growth in the quarter, so guidance for 30% revenue growth throughout calendar 2026 implies substantial acceleration in upcoming quarters.

Applied Materials has an elevated valuation

Not every investor is waiting around for Applied Materials to deliver at least 30% revenue growth in calendar 2026. The stock has more than doubled year to date, resulting in a P/E ratio that soared from the mid-teens just a year ago to over 50 right now.

While the current valuation leaves a lower margin of safety, Applied Materials can fit nicely into its new valuation if it delivers on guidance. The company's guidance for 30% revenue growth for its semiconductor segment in calendar 2026 does not mean it will maintain a 30% revenue growth rate for the rest of the year.

Applied Materials has to achieve 40% to 50% revenue growth in future quarters to offset an 11% year-over-year revenue jump in its Q2. The company has maintained high net profit margins, reaching 35.5% in the most recent quarter, so net income should meaningfully advance in calendar 2026.

Applied Materials' fundamentals are set to strengthen thanks to a multiyear AI supercycle. That can address the valuation and make it more attractive in the near future. Investors who buy now, anticipating what the company can become, may be making a wise decision.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Applied Materials, Micron Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.