Applied Materials Is Building to Double Its Tool Output by 2028 as AI Chip Demand Outruns Supply

Applied Materials just delivered the largest dollar growth in its history, and its executives say demand for advanced chips is running well ahead of supply, with cleanroom space a gating factor over the medium term. The chipmaking-equipment supplier reported record revenue of $10.41 billion for its fiscal fourth quarter, up 53% from a year earlier, and forecast $11.1 billion, plus or minus $500 million, for the current quarter.

Applied sells the deposition, etch, polishing and inspection tools that chipmakers use to build AI processors and memory, so its outlook is an early read on how much the industry plans to spend on new capacity. “Demand for advanced semiconductors remains much higher than supply, and multi-year investments in new fab capacity are needed for the industry to close this supply-demand gap,” Chief Executive Gary Dickerson said on Thursday’s earnings call, according to the company’s published remarks. He expects wafer fab equipment demand to rise more than 30% in 2027.

Both the quarter and the forecast came in above Wall Street’s numbers. Analysts had expected revenue of $10.30 billion and adjusted earnings of $4.06 a share for the quarter, and $10.85 billion in revenue for the current one, Quartz reported, citing The Wall Street Journal. Applied earned $4.16 a share on a non-GAAP basis, up 92%, and its non-GAAP gross margin rose to 50.6%. Revenue for the fiscal year ended Oct. 25 climbed 21% to a record $34.45 billion, the company said.

Memory and packaging drove the jump. Semiconductor Systems, the equipment business, brought in $8 billion, up 64%, with record sales in Korea and Taiwan. DRAM made up 33% of that segment’s revenue, up from 28% a year earlier, while foundry and logic slipped to 58% from 66%. Applied expects advanced-packaging revenue to rise about 90% and inspection and metrology revenue to grow more than 50% in its calendar 2026, a period it defines as the second quarter of fiscal 2026 through the first quarter of fiscal 2027.

The limit now is physical. “Over the medium term, cleanroom capacity remains a gating factor for how much equipment the industry can consume,” Chief Financial Officer Brice Hill said. Applied is tracking more than 20 fab ramps and line expansions in 2027 alone, he said, and for the third quarter in a row it added more than 10 major fab and expansion projects to its tracker, many of them not expected to come online until 2029 and 2030. Dickerson said the largest customers now give Applied rolling eight-quarter forecasts and earlier orders, and that he recently met with more than 250 senior executives from key suppliers to align on capacity.

Applied is spending to keep up. The company is “investing to be able to double our systems output from Q4’26 levels by 2028 and more than double our manufacturing and lab capacity by 2030,” Hill said. Among the demand signals he cited, cloud capex “is expected to increase more than 50% in 2027 to well over a trillion dollars.” Applied’s customers and their customers have sent similar signals. Amazon said last month that it plans to spend even more in 2027, and customers of lithography supplier ASML have been eyeing orders as far out as 2030.

The company is also a heavy AI user in its own operations. More than 80% of Applied’s employees use tools like Microsoft Copilot and Anthropic’s Claude, all of its software developers use AI with an average productivity gain of more than 40%, and its monthly token consumption grew more than 50 times this year, Hill said.

Applied returned $2.42 billion to shareholders in the quarter, including $2 billion in buybacks, which Hill called the largest quarterly repurchase in more than eight years, and it has $10.8 billion left under its authorization. Since its last report, Intel, Kioxia, Besi and UCLA have joined the company’s EPIC Center research facility in Silicon Valley, bringing announced partnerships to 15, and Applied agreed to raise its stake in Besi to about 20%.

The current quarter runs 14 weeks, which Hill said helps services revenue. Applied expects Semiconductor Systems revenue of about $8.7 billion, up 69% from a year earlier, and its first $2 billion quarter in Applied Global Services, its services business.