Data Center Spending Will Surge to $1.4 Trillion in 2027. Here’s 1 Stock to Buy With $500 to Capitalize on This Massive Opportunity

Research and advisory provider Gartner recently noted that spending on data center systems could increase by 55% in 2027, reaching almost $1.4 trillion. This terrific jump isn't surprising, as hyperscalers and AI companies have been ramping up the build-out of data centers to handle artificial intelligence (AI) workloads.

The increase in data center investments next year should help sustain the strong growth in the semiconductor industry. That's because chips reportedly account for 95% of an AI data center server rack's value, according to the Semiconductor Industry Association and Deloitte. As a result, the demand for chipmaking equipment should increase next year.

Applied Materials (NASDAQ:AMAT) is in the business of manufacturing and selling semiconductor manufacturing equipment. The company has capitalized on healthy chip demand this year, as evidenced by its financial performance.

Let's see why buying Applied Materials could be a smart move for 2027 and beyond.

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Applied Materials predicts that its impressive growth is sustainable

When Applied Materials released its fiscal 2026 third-quarter results (for the quarter ended July 26) in August, it reported a 25% year-over-year increase in revenue to a record $9.12 billion. The company's non-GAAP earnings per share (EPS) jumped 41% to a record $3.50. Not surprisingly, the company increased its fiscal 2026 semiconductor systems revenue expectations.

Applied Materials expects $10.25 billion in revenue for fiscal Q4, implying a stronger year-over-year jump of 51%. The EPS guidance of $4.02 suggests a terrific 85% jump. Importantly, Applied Materials notes that annual semiconductor revenue could increase from $1 trillion last year to a range of $1.7 trillion to $3.2 trillion in 2030.

This will drive growth in wafer and fabrication equipment (WFE) sales. Applied Materials expects WFE spending to grow at a faster pace through 2030 compared to the past decade. What's more, the company is targeting market share gains of more than two percentage points in WFE through the end of the decade.

Additionally, the company expects its services segment to generate over $12 billion in revenue in 2030. That would be a big improvement over the $6.4 billion revenue the company's services segment generated in fiscal 2025. The company's Applied Global Services (AGS) segment helps customers increase the productivity of semiconductor manufacturing equipment and also enables faster time-to-market.

Moreover, the company is targeting 40% in non-GAAP operating margin by 2030. For comparison, its non-GAAP operating margin was 34% in the last reported quarter. So, Applied Materials seems primed for solid growth in revenue and earnings over the long run. Not surprisingly, analysts have increased their long-term EPS growth expectations from the company by a nice margin lately.

AMAT EPS LT Growth Estimates data by YCharts

The recent pullback makes the stock a solid buy

Applied Materials stock has dropped by 35% since the beginning of July. Each share of the company now trades at around $400. So, if you've $500 in investable cash right now, you could consider investing it in Applied Materials, given its solid growth prospects and attractive valuation.

The stock is trading at just 23 times forward earnings. Analysts expect its earnings to nearly double in just two years.

AMAT EPS Estimates for Current Fiscal Year data by YCharts

So, there is a strong chance that Applied Materials stock will trade at a premium valuation on the back of its improving growth profile. Assuming its EPS indeed reaches $23.69 in fiscal 2029, and the stock trades at 30 times earnings after a couple of years, almost in line with the tech-focused Nasdaq-100 index's earnings multiple, its stock price could reach $710.

That suggests a potential 77% jump in just two years. So, Applied Materials' recent slide seems like an opportunity in disguise, as investors can buy a top growth stock at an attractive valuation.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Applied Materials. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.