Applied Materials gave an investor presentation today.
While management outlined some initial projections for 2030, it also glossed over some key metrics investors may have wanted.
One conservative data point may be spurring a selloff today.
Shares of semiconductor equipment supplier Applied Materials (NASDAQ:AMAT) sank on Tuesday, down 7.2% as of 3:53 p.m. EDT.
Applied Materials unveiled its $5 billion EPIC research center in Silicon Valley yesterday, a new facility meant to aid co-innovation with Applied's customers.
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Today, Applied followed up on yesterday's event with an investor presentation. While the company painted a bullish picture of the future, the presentation omitted a key data point many investors would have liked to know. Given recent jitters over the sustainability of the AI build-out, it’s no wonder the limited disclosure triggered a sell-off.
At today's investor breakfast, Applied touted its leadership across etch, deposition, e-beam metrology, and advanced packaging tools that will be critical to modern AI systems. In particular, Applied highlighted its leadership in tools for the DRAM, leading-edge logic, and advanced packaging sectors as underpinning growth, as these semiconductor sub-segments are set to benefit most from the growth of agentic AI.
Additionally, management advertised that artificial intelligence is making its operations more efficient, which should boost profitability.
Aside from the technology updates and presentations, CFO Brice Hill also gave guidance on a few financial metrics. Thanks to strong growth in the chip equipment sector, Applied expects its adjusted (non-GAAP) gross margin to expand to roughly 54% by 2030, with an operating margin of approximately 40%. In 2025, adjusted gross margin was 48.8%, while adjusted operating margin was 30.2%. So, the 2030 guidance would mark a strong five percentage point and 10 percentage point improvement, respectively, which is significant.
However, Applied didn't articulate how large its revenue will grow by that time. Instead, management disclosed only its anticipated market share gain and the growth in its services segment. Service revenue encompasses tool maintenance and a data service that helps customers improve yields.
By 2030, Applied expects to gain two percentage points of wafer front-end equipment (WFE) market share. Meanwhile, it also projects services revenue to grow to "over" $12 billion. Last year in fiscal 2025, Applied Global Services amounted to roughly $6.4 billion.
This figure may have alarmed investors. If overall revenue grows in line with service revenue, that may have disappointed some investors hoping for more than a "mere" doubling over five years.
Image source: Getty Images.
Applied Materials made about $28.4 billion in total revenue in fiscal 2025. Should that revenue "only" double to about $57 billion, Applied would generate about $22.8 billion in operating income. With a market cap of around $363 billion today, that implies a 17x multiple on 2030 operating income. Of course, Applied is also repurchasing stock with its ample cash flow, so its shares outstanding would also likely be lower by then.
Still, while certainly not expensive, investors may be expecting a lot more, given that these figures would take four years to manifest.
On the other hand, companies usually guide relatively conservatively when giving projections over multiple years, and management did say services revenue would be "greater" than $12 billion. It’s also possible that equipment sales grow faster than service revenue.
So, Applied may generate significantly more revenue and profits than that baseline projection. However, investors who had been excited by the possibilities of the AI build-out may have taken profits on today's "disappointing" projection.
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Billy Duberstein and/or his clients have positions in Applied Materials. The Motley Fool has positions in and recommends Applied Materials. The Motley Fool has a disclosure policy.