Applied Materials (AMAT) Hits a 25-Year Margin High — Is $642 the Next Target?

 TradingKey - Applied Materials (NASDAQ: AMAT) stands at $608.36, having decisively pierced the ascending black trendline on the 1-hour chart. The stock is currently trading significantly higher than its 50-day EMA at $584.62 and its 200-day EMA at $530.77. For its fiscal second quarter of 2026, the company posted a record revenue of $7.91 billion, an 11% increase compared to the year-ago period.

It also reported a record GAAP EPS of $3.51 along with its best gross margin figures seen in over two decades. In addition to these operational wins, Applied raised its 2026 full-year growth outlook for semiconductor equipment to above 30% and increased its quarterly dividend by 15%, a raise that comes on top of nine previous years of annual dividend hikes. The stock's RSI reading of 60.53-62.16 indicates a neutral-bullish sentiment with no presence of bearish divergence.

Record Margins and a Raised Outlook — What's Actually Driving It

Of all the headline metrics, what investors should fixate on most is gross margin, not revenue growth. A company of Applied's scale and depth in the semiconductor industry posting its highest gross margin in 25 years is a very strong signal of pricing power, a shift in product mix toward its highest-value tools, not just leverage from volume. Management cited AI data center-related demand that is leading to spending on leading-edge foundry-logic, DRAM, and advanced packaging as the drivers of margin strength. These are exactly the areas that Applied has prioritized for its product roadmap.

The company now estimates that leading-edge foundry logic, DRAM and advanced packaging will drive >80% of 2026 growth in wafer fab equipment spend. That kind of product mix is also expected to be prevalent in 2027 as well, implying that this high gross margin mix isn't just a one-time quarterly event. Advanced packaging alone is expected to grow >50% this year (2026).

Advanced packaging is the technology by which chipmakers stitch together multiple silicon dies (logic, memory, accelerator) into a single high-performance package. The technology has become the industry's most limiting bottleneck for AI chip output, the same dynamic currently driving CoWoS capacity expansion at TSMC. Applied supplies the deposition, etching, and planarization equipment that advanced packaging processes require; the company is thus benefiting directly from this bottleneck rather than being dependent on one customer's capex cycle.

EPIC Center Partnerships and the Eight-Quarter Visibility Window

Applied announced new partner engagements with EPIC Centers in its latest quarter, with founding partners and recently added partners including TSMC, Micron, Samsung, SK Hynix and Advantest along with academic partners Arizona State University, Rensselaer Polytechnic Institute and Stanford. With the EPIC Centers model, Applied gains earlier and more specific visibility on next-generation process requirements directly from its largest customer, which management has noted allows them an eight-quarter rolling window of visibility (more for supply chain/capacity planning than for pricing, since pricing is based on long-term contracts with customers). It's this longer visibility window which explains, structurally, why Applied is able to raise its guidance with confidence, even as the broader semiconductor capex cycle remains very sensitive to AI sentiment.

The company disclosed that its balance sheet ended the quarter at $13.38 billion in cash, cash equivalents and investments. Along with this is $1.1 billion in investment tax credits related to capital spending incentives and a 13.0% effective tax rate in the first half of 2026, down significantly from 25.2% in the year-ago period. Both balance sheet strength and the structurally lower tax rate add directly to free cash flow available to fund the dividend hike as well as continued buybacks in addition to any underlying growth in revenue.

AMAT Technical Setup — Trendline Breakout at $608, Targets $641.90 and $668

On the 1H chart, AMAT has broken above the ascending black trendline with green bars showing some modest selling volume absorbed by the buyers as well as well-trading above both the EMA50 at $584.62 and the EMA200 at $530.77. The RSI between 60.53 and 62.16 is neutral-bullish with room for more upside before entering into overbought territory, and there's no sign of a negative divergence.

AMAT Price Chart - Source: Tradingview

There is expansion on the green bars in the channel as it signals that institutions are joining in. A continuation move in the rising channel projects higher price levels to $641.00-668.00. A close of $620.20 signals a target price of $641.90.

• Entry: Long above $620.20 (trendline breakout confirmed)
• Target: $641.90 (channel projection)
• Extension: $668 (upper channel)
• Stop Loss: Close below $584.60 (EMA50 level fails)

Applied Materials' Q2 Fiscal 2026 Earnings

Applied Materials achieved Q2 FY2026 revenue of a record US$7.91 billion for the quarter representing a 11% YoY growth. It generated record GAAP EPS of US$3.51 and record non-GAAP EPS of US$2.86. Gross profit margins expanded to their highest level in over 25 years. Management guided for calendar 2026 semiconductor equipment growth in excess of 30% and announced a 15% increase in quarterly dividend for a 9th consecutive year.

Why Is Advanced Packaging Important to Applied Materials' Growth?

The advanced packaging segment is forecast to grow over 50% in calendar 2026. This trend involves combining logic, memory, and accelerator dies in a high performance package, a process that is becoming a growing constraint on global AI chip output. Applied Materials supplies the deposition, etching, and planarization equipment for this process, meaning it will benefit directly from that growing constraint and from an increase in equipment sales across multiple customers, unlike being dependent on a single AI chipmaker's capex cycle.

AMAT Buy at US$608 After Ascending Trendline Breakout?

RSI 60.53-62.16 neutral-bullish, no bearish divergence. AMAT well above the EMA50 and EMA200. Long above 620.20 with targets at 641.90 and 668. Stop below 584.60. Applied Materials' gross margins hit record levels in Q2 and management is guiding for more than 30% equipment growth in calendar 2026. The company also sees significant EPIC Center activity and visibility across TSMC, Micron and Samsung. $13.38 billion in cash is a plus. A key risk would be a slowdown in the AI related capex spending and / or geopolitical restrictions affecting sales of AMAT equipment to customers in China.

Bottom Line

Applied Materials' 25-year high gross margin ratio and its 30%+ equipment growth guidance in 2026 is due to a mix shift in favor of advanced packaging and AI-driven leading-edge process nodes, rather than just a cyclical recovery in volume. Applied Materials' EPIC Center agreements and partnerships with TSMC, Micron and Samsung provide 8 quarter visibility on future equipment demand.

In my view, management's confidence and optimism in raising guidance in Q2 reflects that the company is not being hit by any AI capex slowdown and the trend is positive. AMAT at 608.36 is trading above its ascending trendline as RSI 60.53-62.16 is neutral-bullish with no divergence. Above 620.20 with targets at 641.90 and 668. Stop below 584.60.