Applied Materials: 25% Growth, and a China Market That Is Not Coming Back

Nobody outside the industry can name the company that builds the machines that build the chips. Applied Materials is the largest of them, and its fiscal third quarter is the cleanest read yet on a business growing fast while one of its biggest markets is being regulated away underneath it. Shares trade around $444.57 as I write this, 39.8% below the 52-week high of $739, a gap that is mostly about China, not about demand for chipmaking equipment.

Revenue was $9.1 billion in the quarter, up 25% from a year earlier, the fastest growth rate this company has posted in years. Gross margin held near 48.7%, and net margin came in at 25%, on net income of $7.0 billion against $7.2 billion a year earlier. That’s the picture without China. With China, the story gets more interesting, and more uneven.

My judgment is that the China decline is a policy story, not a demand story, and that the market is discounting Applied Materials more than the arithmetic supports once you separate the two.

A toll booth, not a chipmaker

Applied Materials doesn’t compete with Nvidia, AMD or the foundries it sells to; it collects from whoever wins. TSMC, Samsung, Intel and every memory maker need deposition, etching and inspection tools to add capacity, and Applied is the largest supplier of that equipment. It’s paid on capital spending, not on which chip design wins the socket, which is why its growth rate can outrun any single customer’s fortunes.

That’s the reason a quarter like this one is possible at all. 25% revenue growth in a hardware business this size is unusual; the last time growth ran this fast, memory prices were in a different part of their cycle and China wasn’t yet cut off from a third of the addressable market.

Applied’s two biggest rivals sell into the same cycle from different angles. Lam Research concentrates on etch and deposition tools weighted toward memory customers, and ASML holds a near-monopoly on the lithography machines that print the smallest features on a chip. None of the three loses when one chipmaker’s design beats a rival’s; all three collect on the capacity build regardless of whose logic or memory ends up inside the finished part.

What China actually cost this quarter

China contributed $2.51 billion in the quarter, or 28% of revenue, down from 35% a year earlier, a shift the company disclosed in its quarterly filing on SEC EDGAR and in coverage of the print. That’s a seven-point drop in mix inside twelve months, which is a fast move for a geographic segment at a company this size.

The cause is regulation, not weaker Chinese fab spending. The Commerce Department widened its export blacklist to catch majority-owned subsidiaries of already-restricted firms, closing a loophole that had let some shipments through. Applied has flagged roughly $600 million of fiscal 2026 revenue at risk from the broader curbs, and it’s now largely locked out of China’s memory chip segment, which had been one of the fastest-growing parts of that market. Its share of China’s wafer fab equipment market has fallen into the mid-20% range as Japanese and Dutch competitors fill the gap Washington opened for them.

I’d flag the uncertainty here directly: I can verify the $600 million figure and the China revenue mix, but I can’t verify how much of that share loss is permanent versus how much comes back if policy ever loosens. Equipment relationships, once rebuilt around a rival supplier, don’t necessarily revert when a rule changes.

Here’s the number that matters more than the headline drop.

Outside China, revenue is growing fast enough to more than offset the loss. Management guided fourth-quarter revenue to a level roughly half again the year-earlier figure, and that guide already assumes the China headwind continues. If the rest of the business is absorbing a shrinking China segment and still posting 25% growth, the offsetting demand is real, not a one-quarter artifact of easy comparisons.

A break from a slow-growth trend line

Revenue growth here has been unremarkable for years: $25.8 billion in fiscal 2022, $26.5 billion in fiscal 2023, $27.2 billion in fiscal 2024, and $28.4 billion in fiscal 2025, each step up in the mid-single digits. A 25% quarterly print, with 15% sequential growth on top of it, is a sharp break from that pattern rather than a continuation of it.

That kind of jump usually means one of two things: a genuine step-change in demand, or a small base compounding off an unusually weak prior-year quarter. I lean toward the former here, since the guide for the next quarter keeps the growth rate high instead of handing the gain back, and since the China headwind means the acceleration is happening despite a shrinking market rather than because of an easy comparison inside it.

None of that shows up in the dividend. The trailing yield is 0.43% on $1.91 paid out over the past year, a token amount next to the growth rate above; nobody should own this stock for the income.

The counter-case I’d need to see

The scenario that would prove this thesis wrong: if the fourth-quarter guide comes in below the raised bar because non-China orders soften at the same time China keeps shrinking, that’s a sign this is a cycle story dressed up as a policy story, and cyclical hardware businesses get repriced hard when that happens. Semiconductor capital equipment has always been lumpy; a strong quarter following export curbs proves resilience for one print, not immunity from the next downturn in fab spending.

Where the valuation sits today

Applied Materials trades at 38.4 times trailing earnings of $11.59 per share, well above its own five-year average, and at a forward P/E of 24.4 against forward EPS of $18.23, implying 57% earnings growth priced in. On sales, the stock trades at 11.0 times revenue versus a five-year average of 5.9, and on book value, 13.2 against 9.3. Every multiple I can check sits meaningfully above its own history, which tells you the market has already given this stock credit for the AI capital-spending cycle continuing.

Shares fell -5.1% on the day of the report, 2026-08-13, against an average earnings-day move of 3.8%, which is the opposite reaction you’d expect from record revenue and a raised guide. I read that drop as the market focusing on the China mix shift and the multiple’s starting point rather than on the underlying growth rate, though that is my interpretation, not a fact I can pin to a single disclosed cause.

27 analysts cover the stock, with 89% rating it a buy and an average target of $692, implying 56% upside from here. The high target of $900 and low of $585 bracket a range wide enough to show real disagreement about how durable this growth rate is. Short interest sits at a modest 2.0% of the float, which tells me the skeptics haven’t organized around this name the way they have around some of the more richly priced AI-adjacent stocks.

A market cap of $352.8 billion on a company still trading below its own 52-week high is not the profile of a stock priced for perfection. It’s priced for a good outcome, not a flawless one, and the gap between 38.4 times trailing earnings and 24.4 times forward earnings is the market’s way of saying it believes the growth rate holds even if it doesn’t fully trust the current quarter as the new baseline.

Compare that against ServiceNow’s production AI-agent numbers or TSMC’s growth rate for its size: Applied sits in the same AI-capex trade as both, one layer further back in the supply chain, collecting on the equipment rather than the chip or the software running on top of it. That distance from the end customer is the appeal and the risk at once; Applied doesn’t need any single AI company to win, but it does need the group of them to keep building.

Metric	Value	Context
Price	$444.57	39.8% below 52-week high of $739
Quarterly revenue	$9.1 billion	up 25% year over year
China revenue mix	28% of sales	down from 35% a year earlier
Trailing P/E	38.4	forward P/E 24.4
Price/sales	11.0	five-year average 5.9
Net margin	25%	net income $7.0 billion, prior year $7.2 billion
Analyst target	$692	56% upside, 89% buy-rated

I’d also watch order timing against shipments. Equipment makers book orders well before they recognize the revenue, so a quarter with a big shipment catch-up can flatter growth even while new bookings cool. Applied doesn’t break that split out in enough detail for me to check it directly this quarter, which is one more reason I’m treating 25% as a strong data point rather than a settled trend.

The number I’m watching into the next print is China’s share of revenue against the fourth-quarter guide. If China settles somewhere around a quarter of sales while the rest of the business keeps compounding at a double-digit clip, this quarter’s drop looks like the adjustment fully working through the numbers rather than the start of a longer slide. If China keeps falling below 25% while the guide gets walked back even slightly, that’s the signal the non-China demand isn’t as durable as this quarter suggested.

Analysis and opinion only, not investment advice. Figures come from Applied Materials’ third-quarter fiscal 2026 results and its quarterly and current filings on SEC EDGAR; valuation multiples are approximate and were checked on September 23, 2026.