Applied Materials vs. Qualcomm: Which Tech Stock Is a Better Buy in 2026?

As the digital economy matures in 2026, many investors are choosing between the companies that build chipmaking tools and those that design the chips. Should you favor Applied Materials (NASDAQ:AMAT) or QUALCOMM (NASDAQ:QCOM)?

Applied Materials provides the essential machinery used by factories to fabricate advanced semiconductors. QUALCOMM designs the processors and wireless technologies that power modern smartphones and connected devices. Comparing these two reveals different ways to play the chip sector, each with unique financial strengths and geographic risks.

The case for Applied Materials

Applied Materials provides equipment for semiconductor fabrication and services for fab performance. Its technologies support manufacturing worldwide, but it relies heavily on a small group of chipmakers. In its latest annual report, filed for the fiscal year ended October 26, 2025, the company noted that two customers accounted for roughly 19% and 15% of its net revenue. Customer concentration like this adds a layer of risk to the business.

In fiscal 2025, revenue reached nearly $28.4 billion, up approximately 4.4% compared to the previous year. Net income was roughly $7 billion, which was a slight decrease from the $7.2 billion reported in fiscal 2024. Net margin for the period was 24.7%, indicating the company retains a significant portion of its sales after all expenses.

Applied Materials' October 2025 balance sheet shows a debt-to-equity ratio of about 0.3. This ratio compares total debt to shareholder equity, suggesting the company uses relatively little borrowed money. The current ratio, which measures the ability to pay short-term debts with current assets, is roughly 2.6. Free cash flow for fiscal 2025 was nearly $5.7 billion, and this figure equals cash flow from operations minus capital expenditures. As a leading name among semiconductor stocks, Applied Materials maintains a global distribution system to support its machinery.

The case for QUALCOMM

QUALCOMM develops foundational wireless and computing technologies, including processors, modems, and software tools. It serves diverse markets like handsets, automotive, and industrial devices. In its latest annual report, filed for the fiscal year ended September 28, 2025, the company disclosed a significant reliance on smartphone manufacturers. Apple (NASDAQ:AAPL), Samsung (KOSE:A005930), and Xiaomi (OTC:XIACF) each accounted for more than 10% of consolidated revenues.

In fiscal 2025, Qualcomm reported revenue of approximately $44.3 billion, an increase of about 13.7% over the prior year. Net income was nearly $5.5 billion, down from roughly $10.1 billion in fiscal 2024. This drop in net margin to close to 12.5% reflects changing market dynamics and increased research and development costs. Despite the dip in net income, Qualcomm continues to benefit from its vast cellular patent portfolio.

As of its September 2025 balance sheet, the debt-to-equity ratio was roughly 0.8. The current ratio was approximately 2.8, indicating a solid buffer for meeting near-term obligations. Free cash flow for fiscal 2025 was nearly $12.8 billion, providing ample capital for dividends and reinvestment. This level of cash generation highlights Qualcomm's ability to monetize its licensing and chip production segments simultaneously.

Risk profile comparison

Applied Materials faces substantial volatility due to cyclical semiconductor industry demand and geographic revenue concentration, particularly in China, Taiwan, and Korea. Regulatory and geopolitical risks are elevated, including complex U.S. export controls and trade policies that limit sales to certain Chinese entities. Applied Materials recently addressed these challenges by reaching a $252 million settlement with the U.S. Department of Commerce related to past export violations. Additional risks include potential supply chain disruptions and the need to maintain intellectual property protections against increasing global competition.

QUALCOMM faces high revenue concentration risks, as its handset business remains dependent on a few premium-tier device makers like Apple and Xiaomi. The company is vulnerable to customers vertically integrating and developing their own chips, which could reduce demand for its modem products. Significant geopolitical tension, particularly regarding U.S. and China trade, threatens its large market share in China. Additionally, Qualcomm faces intense competition in AI and wireless connectivity from diverse global rivals while managing recurring legal challenges concerning its patent licensing practices.

Valuation comparison

QUALCOMM appears significantly cheaper than Applied Materials based on its forward P/E, which compares stock price to future earnings estimates, and its P/S ratio, which measures price against total revenue.

Valuation metrics sourced from Financial Modeling Prep (FMP) and may differ from other data providers.

Which stock would I buy in 2026?

In this semiconductor showdown, I want to like Qualcomm more, because the company's IP segment basically prints money. The licensing business's profit margin is nearly 70%. However, the company's IP division accounts for only 15% to 20% of revenue. Plus, Qualcomm's overall net margin doesn't compare favorably to Applied Materials'.

It's also worth considering the stocks' returns. Over the past 10 years, Applied Materials has outperformed Qualcomm by more than 1,000 percentage points. Worse yet, Qualcomm hasn't even kept pace with the S&P 500. Past performance is no guarantee of future results, but it's hard to make a case for buying an individual stock when I could just put my dollars into an S&P ETF.

Applied Materials' valuation is more expensive, which I don't love (I tend to be a more conservative investor). But I'm not convinced Qualcomm stock is going anywhere, and its heavy reliance on just a few customers is suboptimal. Apple's been designing custom chips for years now. How soon before their engineers manage to cut Qualcomm out of the process altogether?

Applied Materials looks like the better buy here.

Erin Kennedy has positions in Apple. The Motley Fool has positions in and recommends Apple, Applied Materials, Qualcomm, and Xiaomi. The Motley Fool has a disclosure policy.