Q2 2026 Applied Materials Inc Earnings Call

May 14, 2026

Speaker #1: Welcome to the APPLIED MATERIALS II QUARTER OF FISCAL 2026 EARNINGS CALL. During the presentation, all participants will be able to listen only mode. Afterwards, you will be invited to participate in a question-and-answer session.

Operator: Welcome to the Applied Materials Q2 Fiscal 2026 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question and answer session. I would now like to turn the call over to Michael Sullivan, Corporate Vice President of Investor Relations. Please go ahead.

Operator: Welcome to the Applied Materials Q2 Fiscal 2026 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. I would now like to turn the call over to Michael Sullivan, Corporate Vice President of Investor Relations. Please go ahead.

Speaker #1: I would now like to turn the call over to Mike Sullivan, Corporate Vice President of Investor Relations. Please go ahead.

Speaker #2: Good afternoon, everyone, and thank you for joining today's call. With me are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer.

Michael Sullivan: Good afternoon, everyone, thank you for joining today's call. With me are Gary Dickerson, our President and CEO, and Brice Hill, our Chief Financial Officer. Before we begin, I'd like to remind you that today's call includes forward-looking statements, which are subject to risks and uncertainties that could cause our actual results to differ. Information concerning these risks and uncertainties is discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures. Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter. Next, I'll share some calendar items.

Speaker #2: Before we begin, I'd like to remind you that today's call includes forward-looking statements, which are subject to risks and uncertainties that could cause our actual results to differ.

Speaker #2: Information concerning these risks and uncertainties is discussed in our most recent Form 10-Q and other filings with the SEC. Today's call also includes non-GAAP financial measures.

Speaker #2: Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com.

Michael Sullivan: Reconciliations to GAAP measures can be found in today's earnings press release and in our quarterly earnings materials, which are available on our website at ir.appliedmaterials.com. In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter. Next, I'll share some calendar items.

Speaker #2: In addition, any comments regarding calendar 2026 refer to Q2 of this fiscal year through Q1 of fiscal 2027, which will be a 14-week quarter.

Speaker #2: Next, I'll share some calendar items. I'm pleased to announce the second event in our 2026 Masterclass series. We'll cover DRAM and advanced packaging, on a live webcast on Thursday, June 25th, at 9:00 a.m. Pacific Time.

Michael Sullivan: I'm pleased to announce the second event in our 2026 master class series. We'll cover DRAM and advanced packaging on a live webcast on Thursday, 25 June at 9:00 AM Pacific Time. I'd like to remind you about our two special events during SEMICON West. On Monday afternoon, 12 October, we invite you to the unveiling of the new EPIC Center in Sunnyvale, California. On Tuesday morning, 13 October, we hope you'll join Gary, Bryce, and our business unit leaders for our investor breakfast presentation at the Yerba Buena Center in San Francisco. You can join us in person or on a live webcast. With that introduction, I'd now like to turn the call over to Gary Dickerson.

Speaker #2: Next, I'd like to remind you about our two special events during SEMICON WEST. On Monday afternoon, October 12th, we invite you to the Unveiling of the new EPIC Center in Sunnyvale, California.

Speaker #2: And on Tuesday morning, October 13th, we hope you'll join Gary, Brice, and our business unit leaders for our Investor Breakfast presentation at the Yerba Buena Center in San Francisco.

Speaker #2: You can join us in person or on a live webcast. And with that introduction, I'd now like to turn the call over to Gary Dickerson.

Speaker #3: Thank you, Mike. In our second fiscal quarter, Applied Materials delivered record revenue and earnings, along with our highest gross margin in more than 25 years.

Gary Dickerson: Thank you, Mike. In our Q2 fiscal quarter, Applied Materials delivered record revenue and earnings, along with our highest gross margin in more than 25 years. With rising demand and increasing long-term visibility from customers, we see an exceptionally strong foundation for sustained multi-year revenue and profit growth. The momentum in our business is being driven by three key factors. First, the rapid global build-out of AI computing infrastructure. Second, Applied's leadership positions in the most enabling and highest value areas of the market, particularly leading-edge foundry logic, DRAM, and advanced packaging. Third, strong execution across our operations and supply chain.

Speaker #3: With rising demand and increasing long-term visibility from customers, we see an exceptionally strong foundation for sustained multi-year revenue and profit growth. The momentum in our business is being driven by three key factors: first, the rapid global buildout of AI computing infrastructure; second, applied leadership positions in the most enabling and highest value areas of the market, particularly leading-edge foundry logic, DRAM, and advanced packaging; and third, strong execution across our operations and supply chain.

Speaker #3: In my prepared remarks, I will provide an update on how our markets are evolving, explain how APPLIED is enabling the AI roadmap with our differentiated technology and exciting pipeline of new products, and outline how we're transforming the way we work with customers, partners, and across the company to drive higher velocity, increased operating leverage, and scale more efficiently.

Gary Dickerson: In my prepared remarks, I will provide an update on how our markets are evolving, explain how Applied is enabling the AI roadmap with our differentiated technology and exciting pipeline of new products, and outline how we're transforming the way we work with customers, partners, and across the company to drive higher velocity, increase operating leverage, and scale more efficiently. Over the past several months, global AI adoption has continued to accelerate as improvements in the performance and cost of AI computing are translating into real-world applications that deliver compelling returns for users. If I look at our own company as an example, today, we have more than 35,000 AI users across our global workforce. We are deploying AI to drive new scientific breakthroughs, accelerate research and development programs, optimize factory and supply chain operations, increase innovation and productivity and services, and automate workflows across our corporate functions.

Speaker #3: Over the past several months, global AI adoption has continued to accelerate as improvements in the performance and cost of AI computing are translating into real-world applications that deliver compelling returns for users.

Speaker #3: If I look at our own company as an example, today, we have more than 35,000 AI users across our global workforce. We are deploying AI to drive new scientific breakthroughs, accelerate research and development programs, optimize factory and supply chain operations, increase innovation and productivity in services, and automate workflows across our corporate functions.

Speaker #3: This enables us to redirect resources towards higher value work and grow the business significantly faster than our headcount. Similar dynamics are playing out across a broad range of industries and organizations.

Gary Dickerson: This enables us to redirect resources towards higher value work and grow the business significantly faster than our headcount. Similar dynamics are playing out across a broad range of industries and organizations. Publicly available data indicates that global token generation has increased more than threefold in just the past 3 months. Importantly, AI demand is not only growing rapidly, it's also diversifying. Since the beginning of the year, there's been a meaningful increase in agentic applications which layer on top of continued growth in generative AI training and inference workloads. AI computing architectures are workload-specific and optimized for different generative, agentic, or physical AI models. Agentic AI models do more than respond to queries. They plan, reason, and execute tasks autonomously. They therefore require a computing architecture that is more CPU-intensive while also increasing demand for DRAM and NAND.

Speaker #3: Publicly available data indicates that global token generation has increased more than threefold in just the past three months. Importantly, AI demand is not only growing rapidly; it's also diversifying.

Speaker #3: Since the beginning of the year, there's been a meaningful increase in agentic applications which layer on top of continued growth in generative AI training and inference workloads.

Speaker #3: AI computing architectures are workload-specific and optimized for different generative, agentic, or physical AI models. Agentic AI models do more than respond to queries. They plan, reason, and execute tasks autonomously.

Speaker #3: They therefore require a computing architecture that is more CPU-intensive, while also increasing demand for DRAM and NAND. As agentic AI applications grow, they provide an additional tailwind for wafer fab equipment.

Gary Dickerson: As agentic AI applications grow, they provide an additional tailwind for wafer fab equipment. Last quarter, we said the availability of cleanroom space was a key factor pacing the rate of industry investment. As customers find new ways to reallocate or create space, we are seeing incremental requests for equipment deliveries in 2026, and we now expect our semiconductor equipment business will grow more than 30% this calendar year. Given the unprecedented demand environment, we are working closely with our customers on longer-range planning. Our largest customers are providing rolling 8-quarter forecasts so we can prepare the required manufacturing capacity and service resources for their ramps. With this improved visibility, we see continued growth across this extended planning horizon into 2027 and beyond, and we are investing to support our customers' expansion plans.

Speaker #3: Last quarter, we said the availability of clean room space was a key factor pacing the rate of industry investment. As customers find new ways to reallocate or create space, we are seeing incremental requests for equipment deliveries in 2026, and we now expect our semiconductor equipment business will grow more than 30% this calendar year.

Speaker #3: Given the unprecedented demand environment, we are working closely with our customers on longer-range planning. Our largest customers are providing rolling eight-quarter forecasts so we can prepare the required manufacturing capacity and service resources for their ramps.

Speaker #3: With this improved visibility, we see continued growth across this extended planning horizon into 2027 and beyond. And we are investing to support our customers' expansion plans.

Speaker #3: For AI computing, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on performance, power efficiency, and cost. As a result, we expect these three areas to account for more than 80% of the year-on-year growth in total wafer fab equipment spending in 2026 and see a similar profile in 2027.

Gary Dickerson: For AI computing, leading-edge foundry logic, DRAM, and advanced packaging have the greatest impact on overall system performance, power efficiency, and cost. As a result, we expect these three areas to account for more than 80% of the year-on-year growth in total wafer fab equipment spending in 2026 and see a similar profile in 2027. These are also the areas where Applied has strong leadership positions and an innovative pipeline of next-generation technologies. In leading-edge foundry logic, Applied is the clear number 1 process equipment provider with highly differentiated solutions in materials deposition, modification, and treatments, conductor etch, and E-beam technologies. Gate-all-around nodes grow our available market considerably while also providing a catalyst for multiple points of market share gain. This quarter, we announced two new products that further strengthen our Gate-all-around portfolio.

Speaker #3: These are also the areas where Applied has strong leadership positions and an innovative pipeline of next-generation technologies. In leading-edge foundry logic, Applied is the clear number one process equipment provider with highly differentiated solutions in materials deposition, modification and treatments, conductor etch, and E-beam technologies.

Speaker #3: Gate all around nodes grow our available market considerably while also providing a catalyst for multiple points of market share gain. This quarter, we announced two new products that further strengthen our Gate all around portfolio.

Speaker #3: To meet the requirements of different AI workloads in the data center and at the edge, chip makers provide designers with a range of transistor options—with some tuned for peak performance and others tuned to use the lowest amount of power.

Gary Dickerson: To meet the requirements of different AI workloads in the data center and at the edge, chipmakers provide designers with a range of transistor options, with some tuned for peak performance and others tuned to use the lowest amount of power. This tuning is achieved through precise optimization of the materials in the metal gate stack. Our new Trillium ALD integrated material solution precisely deposits metals in the most complex gate-all-around transistor gate stacks. By integrating multiple metal deposition steps in a single platform, Trillium ALD provides Angstrom-level thickness control of metal gate stack layers, giving chipmakers maximum flexibility to tune threshold voltages across different transistors. In advanced foundry logic, shallow trench isolation, or STI, is used to electrically separate neighboring transistors. These narrow isolation trenches are some of the smallest structures in a gate-all-around device.

Speaker #3: This tuning is achieved through precise optimization of the materials in the metal gate stack. Our new trillium ALD integrated material solution precisely deposits metals in the most complex Gate all around transistor gate stacks.

Speaker #3: By integrating multiple metal deposition steps in a single platform, trillium ALD provides angstrom-level thickness control of metal gate stack layers giving chip makers maximum flexibility to tune threshold voltages across different transistors.

Speaker #3: In advanced foundry logic, shallow trench isolation or STI is used to electrically separate neighboring transistors. These narrow isolation trenches are some of the smallest structures in a Gate all around device.

Speaker #3: Our new precision PECVD system uses an industry-first selective bottom-up deposition process to place material exactly where it's needed and protect the STI structure from damage during subsequent processing steps.

Gary Dickerson: Our new precision PECVD system uses an industry-first selective bottom-up deposition process to place material exactly where it's needed and protect the STI structure from damage during subsequent processing steps. By preserving the original shape and height of the isolation trench, our new PECVD solution reduces parasitic capacitance and lowers leakage to boost device performance. In advanced packaging, Applied is also the overall leader with strong positions in high-bandwidth memory and 3D chiplet stacking. We expect to grow our packaging revenues more than 50% in calendar 2026 and are very well-positioned at upcoming packaging inflections. We recently announced our intent to acquire NEXX to further strengthen Applied's portfolio of panel-level technologies, which are designed to enable larger body packages for AI accelerators.

Speaker #3: By preserving the original shape and height of the isolation trench, our new PECVD solution reduces parasitic capacitance and lowers leakage to boost device performance.

Speaker #3: In advanced packaging, APPLIED is also the overall leader with strong positions in high-bandwidth memory and 3D chiplet stacking. We expect to grow our packaging revenues more than 50% in calendar 2026, and our very well-positioned at upcoming packaging inflections.

Speaker #3: We recently announced our intent to acquire NEXT to further strengthen APPLIED's portfolio of panel-level technologies which are designed to enable larger body packages for AI accelerators.

Speaker #3: In DRAM, AI computing is driving incredibly strong demand, and customers are aggressively adding capacity at 6F² nodes while accelerating their development of next-generation device architectures.

Gary Dickerson: In DRAM, AI computing is driving incredibly strong demand, and customers are aggressively adding capacity at 6F² nodes while accelerating their development of next-generation device architectures. Applied is the number one process equipment provider in memory today, thanks to our very strong position in DRAM wiring, patterning, and peripheral logic steps. We expect to gain additional DRAM market share at upcoming transistor and device architecture inflections. We will provide more details at our next master class in June, which will cover both our DRAM and advanced packaging technology roadmaps. To accelerate the industry's roadmap further, we are changing the way we work with our customers and partners by creating a new model for collaboration and innovation. Applied's global EPIC platform is designed to significantly reduce the time it takes to commercialize breakthrough technologies all the way from early-stage research to full-scale manufacturing.

Speaker #3: APPLIED is the number one process equipment provider in memory today thanks to our very strong position in DRAM wiring, patterning, and peripheral logic steps.

Speaker #3: We expect to gain additional DRAM market share at upcoming transistor and device architecture inflections. We will provide more details at our next masterclass in June, which will cover both our DRAM and advanced packaging technology roadmaps.

Speaker #3: To accelerate the industry's roadmap further, we are changing the way we work with our customers and partners by creating a new model for collaboration and innovation.

Speaker #3: APPLIED's global EPIC platform is designed to significantly reduce the time it takes to commercialize breakthrough technologies all the way from early-stage research to full-scale manufacturing.

Speaker #3: For chip makers, EPIC provides earlier access to Applied's R&D portfolio and faster cycles of learning through innovators from customers, partners, and Applied. In addition, EPIC co-innovation programs will provide us with greater multi-node visibility to guide R&D investments and resource allocation, increase R&D productivity and value sharing, and accelerate design wins for Applied equipment and services.

Gary Dickerson: For chipmakers, EPIC provides earlier access to Applied's R&D portfolio and faster cycles of learning through the co-location of key innovators from customers, partners, and Applied. In addition, EPIC co-innovation programs will provide us with greater multi-node visibility to guide R&D investments and resource allocation, increase R&D productivity and value sharing, and accelerate design wins for Applied equipment and services. The centerpiece of the platform is the new EPIC Center in Silicon Valley, which remains on track to begin operations in the fall. Earlier this week, we announced our EPIC co-development engagement with TSMC, who joined as a founding partner together with Micron, Samsung, and SK hynix. We're also excited to announce our first three EPIC university partnerships with ASU, RPI, and Stanford, as well as a development partner agreement with Advantest. We are finalizing additional EPIC agreements that we will publicly announce in the coming months.

Speaker #3: The centerpiece of the platform is the new EPIC center in Silicon Valley, which remains on track to begin operations in the fall. Earlier this week, we announced our EPIC co-development engagement with TSMC.

Speaker #3: Who join as a founding partner together with Micron, Samsung, and SK Hynix. We're also excited to announce our first three EPIC university partnerships with ASU, RPI, and Stanford, as well as a development partner agreement with Advantest.

Speaker #3: We are finalizing an additional EPIC agreements that we will publicly announce in the coming months. To accelerate the transfer of new technologies from APPLIED's labs to customers' fabs, we are also driving new innovations in service.

Gary Dickerson: To accelerate the transfer of new technologies from Applied's labs to customers' fabs, we are also driving new innovations in service. Service is another important growth driver for Applied as we increase the revenue we generate per tool on top of a growing installed base. We expect Applied Global Services to deliver a sustainable annual growth rate in the mid-teens and potentially higher this year. Our advanced service solutions enable customers to accelerate production ramps and optimize output, yield, and cost in their high-volume manufacturing environments. Today, we have more than 35,000 chambers connected to our proprietary AIx software capabilities that use AI-powered monitoring, diagnostics, and analytics. Before I hand it over to Brice, let me briefly summarize. AI adoption is accelerating and diversifying, fueling broad and durable demand for semiconductors and semiconductor equipment.

Speaker #3: Service is another important growth driver for APPLIED as we increase the revenue we generate per tool on top of a growing installed base. As a result, we expect APPLIED global services to deliver a sustainable annual growth rate in the mid-teens and potentially higher this year.

Speaker #3: Our advanced service solutions enable customers to accelerate production ramps and optimize output, yield, and cost in their high-volume manufacturing environments. Today, we have more than 35,000 chambers connected to our proprietary AIX software capabilities that use AI-powered monitoring, diagnostics, and analytics.

Speaker #3: Before I hand it over to Brice, let me briefly summarize. AI adoption is accelerating and diversifying, fueling broad and durable demand for semiconductors and semiconductor equipment.

Speaker #3: Leading-edge foundry logic, DRAM, and advanced packaging are the most critical drivers of performance, power efficiency, and cost for AI computing. As a result, we expect these three areas to account for more than 80% of the year-on-year growth in total wafer fab equipment spending in 2026, and see a similar profile in 2027.

Gary Dickerson: Leading-edge foundry logic, DRAM, and advanced packaging are the most critical drivers of performance, power efficiency, and cost for AI computing. As a result, we expect these three areas to account for more than 80% of the year-on-year growth in total wafer fab equipment spending in 2026 and see a similar profile in 2027. These are areas where Applied has strong market leadership today and a high-value pipeline of next-generation products, providing us with an exceptionally strong foundation for sustained multi-year revenue and profit growth. Finally, through EPIC, our advanced services portfolio and rapid AI adoption across our operations, we are transforming how we work with customers, partners, and inside Applied Materials, driving higher velocity, improving value capture, and efficiently scaling the company as the industry grows. Brice, over to you.

Speaker #3: These are areas where APPLIED has strong market leadership today and a high value pipeline of next-generation products providing us with an exceptionally strong foundation for sustained multi-year revenue and profit growth.

Speaker #3: Finally, through EPIC, our advanced services portfolio and rapid AI adoption across our operations we are transforming how we work with customers, partners, and inside APPLIED materials.

Speaker #3: Driving higher velocity, improving value capture, and efficiently scaling the company as the industry grows. Bryce, over to you.

Speaker #2: Thanks, Gary. AI is driving wafer fab equipment spending to the areas where APPLIED has been investing the most. And we see the positive mix continuing in the second half of the calendar year and well beyond.

Brice Hill: Thanks, Gary. AI is driving wafer fab equipment spending to the areas where Applied has been investing the most, and we see the positive mix continuing in the H2 of the calendar year and well beyond. As the market shifted to our areas of strength in Q2, we delivered double-digit sequential and year-over-year growth across revenue, operating profit, and earnings per share. I'd like to thank our teams and partners for making these results possible by meeting strong customer demand for our AI-enabling materials, engineering, technologies, and systems. On today's call, I'll provide an update on the demand environment, discuss several strategic priorities, summarize our Q2 results, and provide our Q3 guidance. Since we spoke in February, the demand outlook has strengthened across almost every leading indicator we track. Cloud service providers continue to increase capital investments. Most leading-edge logic and DRAM fabs are running at full capacity.

Speaker #2: As the markets shifted to our areas of strength in Q2, we delivered double-digit sequential and year-over-year growth across revenue, operating profit, and earnings per share.

Speaker #2: I'd like to thank our teams and partners for making these results possible by meeting strong customer demand for our AI-enabling materials engineering technologies and systems.

Speaker #2: On today's call, I'll provide an update on the demand environment, discuss several strategic priorities, summarize our Q2 results, and provide our Q3 guidance. Since we spoke in February, the demand outlook has strengthened across almost every leading indicator we track.

Speaker #2: Cloud service providers continue to increase capital investments. Most leading-edge logic and DRAM fabs are running at full capacity. Our customers have announced more fab projects and are giving us the clearest and longest visibility we've ever had.

Brice Hill: Our customers have announced more fab projects and are giving us the clearest and longest visibility we've ever had. Customers have been using a variety of techniques to increase cleanroom capacity this year, which is growing the market and our revenue expectations. Based on our latest discussions with them, we expect 2027 will be another strong record year for the industry. Next, I'll summarize several of our strategic priorities. Our top priority is increasing output to serve our customers' growing demand. We've nearly doubled our manufacturing capacity to support them with expansions in the US and Europe and an additional new manufacturing center in Singapore. We've increased our build plan, inventory positions, and logistics capacity. We are systematically translating our 8-quarter customer demand forecast into a consolidated signal to our suppliers, ensuring they have the visibility they need to make their own capacity and resource additions.

Speaker #2: Customers have been using a variety of techniques to increase clean room capacity this year, which is growing the market and our revenue expectations. And based on our latest discussions with them, we expect 2027 will be another strong record year for the industry.

Speaker #2: Next, I'll summarize several of our strategic priorities. Our top priority is increasing output to serve our customers' growing demand. We've nearly doubled our manufacturing capacity to support them with expansions in the US and Europe, and an additional new manufacturing center in Singapore.

Speaker #2: We've increased our build plan, inventory positions, and logistics capacity. We are systematically translating our eight-quarter customer demand forecast into a consolidated signal to our suppliers.

Speaker #2: Ensuring they have the visibility they need to make their own capacity and resource additions. Next, I'll share how this translates to profitability. Funding our collaborative R&D process helps us identify the highest value technology challenges and gives us line-of-sight to the most compelling solutions.

Brice Hill: Next, I'll share how this translates to profitability. Funding our collaborative R&D process helps us identify the highest value technology challenges and gives us line of sight to the most compelling solutions. As we bring newly developed tools to market, our portfolio becomes more valuable and our gross margins expand. In fact, our non-GAAP gross margin has increased 800 basis points since Gary became CEO in 2013. It is now crossing 50% at the company level and approaching 55% in Semiconductor Systems. In addition, we are focused on driving higher operating profit and leverage with productivity tools and plans being deployed across the company. While fully investing in the R&D that grows our business and gross margins, we also expect to increase spending more slowly than revenue and deliver increasing operating profit. Next, I'll summarize our Q2 results.

Speaker #2: As we bring newly developed tools to market, our portfolio becomes more valuable and our gross margins expand. In fact, our non-gap gross margin has increased 800 basis points since Gary became CEO in 2013.

Speaker #2: It is now crossing 50% at the company level and approaching 55% in semiconductor systems. In addition, we are focused on driving higher operating profit and leverage with productivity tools and plans being deployed across the company.

Speaker #2: We'll fully invest in the R&D that grows our business and gross margins. We also expect to increase spending more slowly than revenue, and deliver increasing operating profit.

Speaker #2: Next, I'll summarize our Q2 results. We generated record revenue of $7.91 billion which is up 13% sequentially and 11% year-over-year. Non-gap gross margin reached 50% in the quarter increasing 80 basis points year-over-year driven by value-based pricing from our most differentiated products coupled with ongoing manufacturing cost innovations.

Brice Hill: We generated record revenue of $7.91 billion, which is up 13% sequentially and 11% year over year. Non-GAAP gross margin reached 50% in the quarter, increasing 80 basis points year over year, driven by value-based pricing from our most differentiated products, coupled with ongoing manufacturing cost innovations. Non-GAAP operating margin expanded to 32.1%, up 140 basis points year over year. We delivered record non-GAAP earnings per share of $2.86, which was up 20% year over year. Turning to the segments, Semiconductor Systems delivered record revenue of $5.97 billion, which is up 16% sequentially and up 10% year over year.

Speaker #2: Non-gap operating margin expanded to 32.1%, up 140 basis points year-over-year. And we delivered record non-gap earnings per share of $2.86 which is up 20% year-over-year.

Speaker #2: Turning to the segments, Semiconductor Systems delivered record revenue of $5.97 billion, which is up 16% sequentially and up 10% year-over-year. The transition to gate-all-around nodes, along with capacity additions at leading-edge FinFET nodes, drove record foundry revenue as well as record revenue across ALD, Epitaxy, and materials treatments.

Brice Hill: The transition to gate-all-around nodes, along with capacity additions at leading-edge FinFET nodes, drove record foundry revenue as well as record revenue across ALD, epitaxy, and materials treatments. DRAM revenue of $1.7 billion grew 18% year-over-year. Advanced packaging revenue is accelerating this calendar year within both foundry logic and DRAM, and investments are shifting toward our leadership positions in 3D stacking. Segment gross margin and operating margin both increased year-over-year. Applied Global Services delivered record revenue of $1.67 billion, which is up 17% year-over-year, reflecting the benefit of higher fab utilizations. Services growth remains strong as our installed base expands and customers choose our most advanced services to boost output and yield. AGS also generated year-over-year increases in gross margin and operating margin.

Speaker #2: DRAM revenue of $1.7 billion grew 18% year-over-year. Advanced packaging revenue is accelerating this calendar year, within both foundry logic and DRAM, and positions in 3D stacking.

Speaker #2: Segment gross margin and operating margin both increased year-over-year. APLIED Global Services delivered record revenue of $1.67 billion which is up 17% year-over-year reflecting the benefit of higher fab utilizations.

Speaker #2: Services growth remained strong as our installed base expands and customers choose our most advanced services to boost output and yield. AGS also generated year-over-year increases in gross margin and operating margin.

Speaker #2: Other revenue of $280 million was in line with our expectations. China represented 24% of our semiconductor systems plus AGS revenue. We expect our business in China and our ICAPS business worldwide to be flat to slightly higher in the calendar year.

Brice Hill: Other revenue of $280 million was in line with our expectations. China represented 24% of our Semiconductor Systems plus AGS revenue. We expect our business in China and our ICAPS business worldwide to be flat to slightly higher in the calendar year. Cash from operations was $845 million. Capital expenditures were $635 million, resulting in free cash flow of $210 million. We distributed $765 million to shareholders, including $365 million in dividends and $400 million in stock repurchases. In March, we announced a 15% increase to the quarterly cash dividend and achieved a goal we set several years ago to double the dividend per share. Now, I'll share our guidance for Q3.

Speaker #2: Cash from operations was $845 million. Capital expenditures were $635 million resulting in free cash flow of $210 million. We distributed $765 million to shareholders including $365 million in dividends, and $400 million in stock repurchases.

Speaker #2: In March, we announced a 15% increase to the quarterly cash dividend and achieved a goal we set several years ago to double the dividend per share.

Speaker #2: Now, I'll share our guidance for Q3. We expect company revenue of $8.95 billion, plus or minus $500 million, which is up nearly 23% year-over-year.

Brice Hill: We expect company revenue of $8.95 billion ±$500 million, which is up nearly 23% year-over-year. We expect non-GAAP EPS of $3.36 ±$0.20, which is up nearly 36% year-over-year. Within this outlook, we expect Semiconductor Systems revenue of around $6.9 billion, AGS revenue of about $1.75 billion, and other revenue of around $300 million. We expect non-GAAP gross margin to increase modestly to approximately 50.1%. We expect non-GAAP operating expenses of around $1.485 billion. Finally, we're modeling a non-GAAP tax rate of around 11%. In summary, the growth in AI that we've been investing for is now in full force.

Speaker #2: We expect non-gap EPS of $3.36 plus or minus $0.20 which is up nearly 36% year-over-year. Within this outlook, we expect semiconductor systems revenue of around billion; AGS revenue of about $1.75 billion; and other revenue of around $300 million.

Speaker #2: We expect non-GAAP gross margin to increase modestly to approximately 50.1%, and we expect non-GAAP operating expenses of around $1.485 billion. Finally, we're modeling a non-GAAP tax rate of around 11%.

Speaker #2: In summary, the growth in AI that we've been investing for is now in full force. As a result, the industry spending mix has shifted to leading-edge foundry logic, DRAM, and advanced packaging where Applied has built the number one process equipment market positions.

Brice Hill: As a result, the industry spending mix has shifted to leading-edge foundry logic, DRAM, and advanced packaging, where Applied has built the number one process equipment market positions. We are investing with confidence to support the strong long-term growth our customers are giving us visibility into and ensuring our suppliers do the same. Finally, we are using the benefits of the AI technologies we enable to accelerate innovation and revenue generation and increase operating leverage and shareholder returns. Mike, please begin the Q&A session.

Speaker #2: We are investing with confidence to support the strong long-term growth our customers are giving us visibility into and ensuring our suppliers do the same.

Speaker #2: Finally, we are using the benefits of the AI technologies we enable to accelerate innovation and revenue generation and increase operating leverage and shareholder returns.

Speaker #2: Now, Mike, please begin the Q&A session.

Speaker #1: Thanks, Bryce. To help us reach as many people as we can on today's call, please ask just one question and no more than one brief follow-up.

Michael Sullivan: Thanks, Brice. To help us reach as many people as we can on today's call, please ask just one question and no more than one brief follow-up. Operator, let's please begin.

Speaker #1: Operator, let's please begin.

Speaker #3: Certainly. And our first question for today comes from the line of CJ Mews from Canterford's Gerald.

Operator: Certainly. Our first question for today comes from the line of C.J. Muse from Cantor Fitzgerald.

Speaker #4: Yeah, good afternoon. Thank you for taking the question. You talked about eighth-quarter rolling visibility with customers, and I'm curious, how that might be causing order patterns to change, perhaps upfront payments, a change in the pricing environment.

C.J. Muse: Yeah, good afternoon. Thank you for taking the question. You talked about, you know, eight-quarter rolling visibility with customers, and I'm curious, you know, how that might be causing order patterns to change, perhaps upfront payments, you know, a change in the pricing environment. Would love to hear, you know, how you're thinking about your relationship with customers given, you know, how tight equipment is and will likely be for years to come.

Speaker #4: Would love to hear how you're thinking about your relationship with customers, given how tight equipment is and will likely be for years to come.

Speaker #1: Hi, CJ. It's Bryce. Thanks for the question. So yes, for the large customers, we're definitely working on eighth-quarter rolling visibility with them. That helps us primarily plan the supply chain.

Brice Hill: Hi, C.J. It's Brice. Thanks for the question. Yes, for the large customers, we're definitely working on 8-quarter rolling visibility with them. That helps us, you know, primarily plan the supply chain. Our supply chain needs that kind of lead time in order to make their investments and expansions, you know, across the large group of suppliers. We've said before, we have, you know, on the order of 2,000 direct suppliers and a large number of components for each tool. That's the primary reason. From a payments perspective, you know, as you know, some of our customers do, we do require deposits, but that's not across the board. On the pricing side of things, our pricing generally works as long-term contracts with customers based on projects.

Speaker #1: Our supply chain needs that kind of lead time. In order to make their investments and expansions, across the large group of suppliers, we've said before we have on the order of 2,000 direct suppliers and a large number of components for each tool.

Speaker #1: So that's the primary reason. From a payments perspective, as you know, some of our customers do we do require deposits, but that's not across the board.

Speaker #1: On the pricing side of things, our pricing generally works as long-term contracts with customers based on projects. So you can picture it as a two to three-year pricing contract for a particular project.

Brice Hill: You can picture it as, you know, a two- to three-year pricing contract for a particular project. Pricing moves relatively slowly in the environment. What has been driving our pricing up over the past couple of years and helping us grow our gross margin over the past couple of years has been the gradual enrichening of the portfolio. Every time we launch a new solution, it's typically a more important solution in terms of its value to customers solving complex problems. That makes the portfolio stronger, and we price accordingly for that, and that's why you've seen our systems gross margins improve, you know, over the last two years. I'll leave it at that. No, you know, at this point in time, no change in the overall model.

Speaker #1: So pricing moves relatively slowly in the environment. What has been driving our pricing up over the past couple of years and helping us grow our gross margin over the past couple of years has been the gradual enriching of the portfolio.

Speaker #1: So every time we launch a new, typically a more important, solution in terms of its value to customers—solving complex problems—that makes the portfolio stronger, and we price accordingly for that.

Speaker #1: And that's why you've seen our systems gross margins improve over the last two years. So I'll leave it at that. No at this point in time, no change in the overall model.

Speaker #4: Yeah, CJ, this is Gary. I would say relative to pricing, really, we're in a great position in the industry in that the most critical innovations for AI computing are in the sweet spot for Applied and leading-edge foundry logic, DRAM, and advanced packaging.

Gary Dickerson: Yeah, CJ, this is Gary. I would say relative to pricing, really, we're in a great position in the industry in that the most critical innovations for AI computing are in the sweet spot for Applied in leading-edge foundry logic, DRAM, and advanced packaging. You know, really Applied innovations are enabling these architecture inflections that are providing tremendous improvements in computing. That puts us in a good position with tailwinds to drive pricing in the near term, and then also, as we're creating more value for our customers, it creates an opportunity for us to capture more value from Applied Materials. You know, I have high confidence that the margin progress that we've seen over the last few years is gonna continue as we go forward.

Speaker #4: And really, applied innovations are enabling these architecture inflections that are providing tremendous improvements in computing. So that puts us in a good position with tailwinds to drive pricing in the near term, and then also, as we're creating more value for our customers, it creates an opportunity for us to capture more value from Applied Materials.

Speaker #4: So I have high confidence that the margin progress that we've seen over the last few years is going to continue as we go forward.

C.J. Muse: As a quick follow-up, just on the gross margin side, you know, great guide with, I'm assuming, depressed China. How should we think about gross margins beyond the July quarter, particularly as it appears as silicon, you know, will continue to grow sequentially, you know, well into 2027 and beyond?

Speaker #5: As a quick follow-up just on the gross margin side, great guide with—I'm assuming—depressed China. How should we think about gross margins beyond the July quarter, particularly as it appears that silicon will continue to grow sequentially well into 2027 and beyond?

Brice Hill: Hi. Yep. C.J., thank you. We guided 50.1% for the company-level gross margin. I'll just remind investors that we're now reporting our gross margin for each operating segment, so they'll be able to see that our Semiconductor Systems gross margin is 54.8% in Q2, and, you know, that represents the improvements we're talking about. On the systems, to your point, we expect to continue to make improvements. That's really driven by the, you know, gradual, you know, strength in portfolio as we launch new equipment. The improvement will be slow, but we expect continued improvement in the gross margins, and that's really where you get that guide of 50.1%.

Speaker #1: Hi. Yep, CJ, thank you. So we guided 50.1% for the company-level gross margin. I'll just remind investors that we're now reporting our gross margin for each operating segment.

Speaker #1: So, they'll be able to see that our semi-systems gross margin is 54.8% in Q2, and that represents the improvements we're talking about. And on the systems, to your point, we expect to continue to make improvements — that's really driven by the gradual strength in the portfolio as we launch new equipment.

Speaker #1: So, the improvement will be slow, but we expect continued improvement in the gross margins, and that's really where you get that guide of 50.1.

Speaker #1: So a slight increase for Q3 from Q2 and we would expect to be able to continue that process going forward as we launch new tools and solutions.

Brice Hill: A slight increase for Q3 from Q2, and we would expect to be able to continue that process going forward as we launch new tools and solutions.

Speaker #4: Thank you.

Stacy Rasgon: Thank you.

Speaker #3: Thank you. And our next question comes from the line of Stacey Raskin from Bernstein Research. Your question, please.

Operator: Thank you. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question please.

Speaker #6: Hi, guys. Thanks for taking my question. So for 30% year-over-year equipment growth, so that looks like you're suggesting something like 14.5, 15 billion dollars in the second half of the calendar year for equipment.

Stacy Rasgon: Hi, guys. Thanks for taking my question. For a 30% year-over-year equipment growth, so that looks like you're suggesting something like $14.5 billion, $15 billion in the H2 of the calendar year for equipment. I guess I just want to verify that's true. I guess what are your thoughts, maybe it's too early about calendar 2027, but, I mean, given 2026 is still a constrained year, I guess what are your thoughts on WFE growth versus your own growth in 2026? Is there any reason to think that 2027 couldn't be even better as clean rooms become more available?

Speaker #6: And I guess I just want to verify that's true. And I guess what Maybe it's too early about calendar 27, but I mean, given 26 is still a constrained year?

Speaker #6: I guess what are your thoughts on WFE growth versus your own growth in 26? And is there any reason to think that 27 couldn't be even better as cleaners become more available?

Speaker #6: I guess just how do we think about the trajectory of growth into 27 as the clean rooms come online relative to what you're suggesting as we see into the back half of this year?

Stacy Rasgon: I guess just how do we think about the trajectory of growth into 2027 as the clean rooms, like, come online, relative to what you're suggesting as we see into the back half of this year?

Speaker #1: Yep. Hi, Stacey. Good to hear from you. So, on the 30% year-over-year equipment growth, it does suggest a second half on the order that you described.

Brice Hill: Yeah. Hi, Stacy. Good to hear from you. On the 30% year over year equipment growth, it does suggest, you know, a H2 on the order that you described. We do think that the demand signal is very strong. Our customers increased orders, you know, in the last 90 days, as Gary described, as customers are finding new floor space and clean room solutions. I think investors should think about, you know, when they think about the roadmap of capacity, you know, we've said before, we're tracking over 100 factory projects globally. We added more than 10 just in the last quarter. You should expect a pipeline of new clean room coming on board so customers can continue to grow the wafer starts across the end markets that we're talking about.

Speaker #1: We do think that the demand signal is very strong. Our customers increased orders in the last 90 days, as Gary described, as customers are finding new floor space and clean room solutions.

Speaker #1: And I think investors should think about when they think about the roadmap of capacity, we've said before we're tracking over 100 factory projects globally.

Speaker #1: We added more than 10 just in the last quarter. So you should expect a pipeline of new clean room coming on board. So customers can continue to grow the way for starts across the end markets that we're talking about.

Speaker #1: So we do expect growth in WFE. We do expect growth in way for starts overall. And we think that's headlined by the AI demand function.

Brice Hill: We do expect growth in WFE. We do expect growth in wafer starts overall. We think that's you know, headlined by the AI demand function.

Speaker #4: Yeah, Stacey, again, as Bryce indicated, 27 still it looks like a strong growth year for us. And I can tell you that I'm having constant conversations with customers and they're looking at 27 and they're looking at 28.

Gary Dickerson: Yeah.

Stacy Rasgon: Thanks.

Gary Dickerson: Stacy, again, as Brice indicated, 2027 still looks like a strong growth year for us. I can tell you that I'm having constant conversations with customers, and they're looking at 2027 and they're looking at 2028 again because the compute demand is growing so quickly. Earlier on the call, we talked about agentic AI on top of the, you know, what we've been seeing. In that, we're modeling incremental CPU demand, incremental DRAM and NAND demand. That's a meaningful increase on top of what we had been forecasting previously. Then, you know, you go beyond that with physical AI coming in the future, and we think this demand environment is gonna continue strong for a number of years. Certainly, you know, as I'm having many conversations with customers, that is a major focus for them.

Speaker #4: Again, because the compute demand is growing so quickly. Earlier on the call, we talked about agentic AI. On top of what we've been seeing, we're modeling incremental CPU demand, incremental DRAM, and NAND demand.

Speaker #4: That's a meaningful increase on top of what we had been forecasting previously. And then you go beyond that with physical AI coming in the future.

Speaker #4: And we think this demand environment is going to continue strong for a number of years. And certainly, as I'm having many conversations with customers, that is a major focus for them.

Speaker #5: Got it. That's helpful. Thank you. For my follow-up, I wanted to ask about your manufacturing capacity. So you see you doubled it. So is it already to go?

Stacy Rasgon: Got it. That's helpful. Thank you. For my follow-up, I wanted to ask about your manufacturing capacity. You said you doubled it. Is it all ready to go? Like, I guess how full is it? Maybe the question I'm asking is, like, if it was full, how much revenue capacity could you actually support? Is there actually more margin upside as that capacity that you brought online actually starts to fill up?

Speaker #5: How much revenue? I guess how full is it? Maybe the question I'm asking is if it was full, how much revenue capacity could you actually support?

Speaker #5: And is there actually more margin upside as that capacity that you brought online actually starts to fill up?

Brice Hill: Stacy, yes. On the first part, from a floor space perspective, it's ready to go and available. We would have to fit that up and hire people as we ramp. We have the capability of significantly expanding the output. Last Q, I said we could double. As we're growing, you know, it leads into that a little bit, but that's a rough approximation. We have significant capacity available. Our job is to work with the supply chain and have the supply chain work at the same speed we are.

Speaker #1: Stacey, yes. So on the first part, from a floor space perspective, it's ready to go and available. We would have to fit that up in higher people as we ramp.

Speaker #1: So we have the capability of significantly expanding the output last quarter. I said we could double as we're growing leads into that a little bit.

Speaker #1: But that's a rough approximation. So we have significant capacity available. Our job is to work with the supply chain and have the supply chain work at the same speed we are.

Speaker #5: Got it. Thank you, guys.

Stacy Rasgon: Got it. Thank you, guys.

Speaker #3: Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Operator: Thank you. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Vivek Arya: Thanks for taking my questions. You know, if we look at WFE growth this year, it's very strong, but it is still below semiconductor industry growth, mainly because semis are being driven more by pricing rather than units. Gary, I'm curious that as you look over the next, you know, one to three years, do you think that semi industry growth comes more from units or it still continues to be reliant on pricing?

Speaker #6: Thanks for taking my questions. If we look at WFE growth this year, it's very strong, but it is still below semiconductor industry growth, mainly because semis are being driven more by pricing rather than units.

Speaker #6: So Gary, I'm curious that as you look over the next one to three years, do you think that semi-industry growth comes more from units or it's still continues to be reliant on pricing?

Speaker #4: Yeah, thanks for that question, Vivek. Again, when I'm talking to our customers or customers' customers, I think everyone sees tremendous increase in computing demand going forward.

Gary Dickerson: Yeah, thanks for the question, Vivek. When I'm talking to our customers or our customers' customers, I think everyone sees tremendous increase in computing demand going forward. I talked about all these layers of demand that are increasing as we go forward. You know, I think that, and as I mentioned also with customers, the focus is, I was just with a customer 2 days ago. They were worried about the supply all the way into 2030. Again, the computing demand, I think, is increasing. I'm not gonna speculate on pricing.

Speaker #4: And I talked about all these layers of demand. That are increasing as we go forward. So I think that and as I mentioned also with customers, the focus is I was just with a customer two days ago.

Speaker #4: They were worried about the supply all the way into 2030. So again, the computing demand I think is increasing. I'm not going to speculate on pricing.

Gary Dickerson: What we do see, again, is a broadening in terms of the customers that we're working with. Everyone sees this increase in compute demand, and that is really great for Applied because all of the markets that are growing the fastest, the leading edge foundry logic, we're seeing a broadening of demand, very strong demand for DRAM and high band-bandwidth memory. The ecosystem working on new packaging architectures that drive major improvements in performance and power tokens per second per watt. Again, all of this is great for Applied. I'm not gonna speculate on, you know, the units versus pricing, but what I would say is that the market environment for Applied has never been better, and our positions in the market have never been better.

Speaker #4: What we do see, again, is a broadening in terms of the customers that we're working with because everyone sees this increase in compute demand and that is really great for applied because all of the markets that are growing the fastest, the leading-edge foundry logic, we're seeing a broadening of demand.

Speaker #4: Very strong demand for DRAM and high-bandwidth memory. The ecosystem working on new packaging architectures that drive major improvements in performance and power tokens per second per watt.

Speaker #4: So again, all of this is great for applied. I'm not going to speculate on the units versus pricing, but what I would say is that the market environment for applied has never been better and our positions in the market have never been better.

Speaker #3: Got it.

Vivek Arya: All right. For my follow-up, if your system sales are growing over 30% and, you know, there's a lot of discussion that maybe growth accelerates next year, how should we think about growth in AGS given that level of growth? Is there some kind of correlation? Is there some kind of, you know, kind of lagging growth that we can start to see acceleration even in AGS at some point? Thank you.

Speaker #6: And from my follow-up, if your system sales are growing over 30% and there's a lot of discussion that maybe growth accelerates, next year, how should we think about growth in AGS given that level of growth?

Speaker #6: Is there some kind of correlation? Is there some kind of kind of lagging growth that we can start to see acceleration even in AGS at some point?

Speaker #6: Thank you.

Speaker #1: Hi, Vivek. It's Bryce. Yeah, thanks for that question. So we had previously communicated low double digits growth expectation. For AGS, our service is business.

Brice Hill: Hi, Vivek, it's Brice. Yeah, thanks for that question. We had previously communicated low double-digit growth expectation for AGS, our services business. To your point, as the systems business is running higher and we've raised expectations for the systems business, that means the AGS installed base will grow. The service opportunity for AGS grows and as well as the spare parts, and as factory utilizations have improved. We are going to raise our expectations for AGS to mid-teens for sort of the normal environment. We think this year will end up being a little bit higher than that because we have so much utilization improvement across the industry and so many new factories that gives it extra bump.

Speaker #1: And to your point, as the systems business is running higher and we've raised expectations for the systems business, that means the AGS installed base will grow.

Speaker #1: So the service opportunity for AGS grows. And as well as the spare parts and as factory utilizations have improved. So we are going to raise our expectations for AGS to mid-teens for sort of the normal environment.

Speaker #1: And we think this year we'll end up being a little bit higher than that because we have so many so much utilization improvement across the industry and so many new factories that that gives it an extra bump.

Speaker #1: So I would say mid-teens from a medium-term modeling perspective. And higher than that this year.

Brice Hill: I would say, you know, mid-teens from a medium-term modeling perspective and higher than that this year.

Speaker #4: Yeah, the other thing I would say on AGS, there's never been a time where output yield innovation is more valuable than today. And I mentioned earlier on the call that we have over 35,000 chambers connected to our AIX servers.

Gary Dickerson: The other thing I would say on AGS, there's never been a time where output yield innovation is more valuable than today. I mentioned earlier on the call that we have over 35,000 chambers connected to our AIx servers. We're also driving service innovations with AI-enabled applications, predictive models to improve wafer fab output, yield, and cost. I think in addition to the growing equipment business that will help accelerate AGS growth, we're also driving higher value service innovations that will also support that growth.

Speaker #4: So we're also driving service innovations with AI-enabled applications, predictive models, to improve wafer fab output, yield, and cost. So I think in addition to the growing equipment business that will help accelerate AGS growth, we're also driving higher value service innovations that will also support that growth.

Speaker #6: Thank you.

Vivek Arya: Thank you.

Speaker #3: Thank you. And our next question comes from the line of Timothy Arcury from UBS. Your question, please.

Operator: Thank you. Our next question comes to the line of Timothy Arcuri from UBS. Your question please.

Speaker #4: Thanks a lot. Brice, I wanted to go back to this 'up 30, at least 30 this year' as well. So if I just do the math, I mean, it sort of implies that you barely grow off of the July levels, which doesn't seem possible given that you're booked out for at least a year.

Timothy Arcuri: Thanks a lot. Brice, I wanted to go back to this up 30, at least 30 this year as well. If I just do the math, I mean, it sort of implies that you barely grow off of the July levels, which doesn't seem possible given that you're booked out for at least 1 year. I would think you can probably grow at least the same number of dollars in systems that you've been growing the last 2 quarters. That would put you, like, more above 40. I'm surprised you said above 30 and not above 40. Are you just being conservative or is there something, like, in the back half of the year where the sequentials can't grow as fast from an absolute, you know, systems level? Can you just talk about that?

Speaker #4: So I would think you can probably grow at least the same number of dollars in systems that you've been growing the last two quarters.

Speaker #4: So that would put you more above 40. So I’m surprised you said above 30 and not above 40. So are you just being conservative, or is there something like in the back half of the year where the sequentials can’t grow as fast from an absolute systems level?

Speaker #4: Can you just talk about that?

Speaker #1: Sure. Just to reiterate, we're saying 30% growth year over year in our systems business. And Tim, I think we're not giving explicit linearity for the out quarters, but we'd be comfortable if you just assumed it was linear from Q3 to Q4 to our fiscal Q1.

Brice Hill: Sure. Just to reiterate, we're saying 30% growth year over year in our systems business. Tim, I think, we're not giving explicit linearity for the out quarters, but we'd be comfortable if you just assumed it was linear from Q3 to Q4 to our fiscal Q1.

Speaker #4: Okay, so it's going to grow about the same on a dollar basis. Bryce, is that sorry, just to clarify?

Timothy Arcuri: Okay. It's going to grow about the same on a dollar basis, Brice? Is that just to clarify?

Speaker #1: On a dollar basis, I would just draw a line and say it grows linearly from our Q3 guide through Q1.

Brice Hill: On a dollar basis, I would just draw a line and say it grows linearly from our Q3 guide through Q1.

Timothy Arcuri: Okay, got it. Then, Gary, can I ask you about the Huawei story? I mean, how do you think about I mean, you know, that letter in and of itself is not, like, it doesn't really hurt you at all. How do you think about the risk of that broadening? Because there's a lot of examples of these fabs being commingled in these clusters, some of which you can ship to and some of which you can't. You know, is there risk that this spreads and maybe, you know, it sort of encaptures more in the net where you can't ship to these fab complexes that have stuff that's allowed and stuff that's not allowed commingled in the same complex? Can you just talk about that? Thanks.

Speaker #4: Okay, got it. And then Gary, can I ask you about the Huawei story? I mean, how do you think about I mean, that letter in and of itself is not it doesn't really hurt you at all.

Speaker #4: But how do you think about the risk of that broadening? Because there's a lot of examples of these fabs being commingled in these clusters some of which you can ship to and some of which you can't.

Speaker #4: So is there risk that this spreads and maybe it sort of encaptures more in the net where you can't ship to these fab complexes that have stuff that's allowed and stuff that's not allowed commingled in the same complex?

Speaker #4: Can you just talk about that? Thanks.

Speaker #5: Yeah, thanks, Tim. Let me just clarify. Relative to our semi-equipment business, we'll grow 30% or more in the year. And it's really supply chain.

Gary Dickerson: Yeah. Thanks, Tim. Let me just clarify. You know, relative to our semi equipment business, we'll grow 30% or more in the year. It's really supply chain. You know, that's one thing that is, I think, an issue for everybody. As Brice mentioned earlier, our operations can scale significantly beyond where we're at right now. It takes time for the supply chain to respond, and certainly, we're working at as rapidly as we can. I really do believe we've made tremendous improvements in our supply chain and our operations over the last several years, so I feel really good about that. Relative to restrictions, I don't really wanna comment on that. All of that has been factored into our guide for the quarter and our viewpoint on growth in the calendar year.

Speaker #5: That's one thing that is, I think, an issue for everybody as Bryce mentioned earlier, our operations can scale significantly beyond where we're at right now.

Speaker #5: But it takes time for the supply chain to respond and certainly we're working at as rapidly as we can. And I really do believe we've made tremendous improvements in our supply chain and our operations over the last several years.

Speaker #5: So I feel really good about that. Relative to restrictions, I don't really want to comment on that. All of that has been factored into our guide for the quarter and our viewpoint on growth in the calendar year.

Gary Dickerson: Again, what I would say, if you look at the mix of business going forward, the AI compute innovations are really going to drive in 2026-2027 and going forward, leading-edge foundry logic, DRAM, high-bandwidth memory, and advanced packaging. Those are the areas where Applied has tremendous strength, and we are absolutely positioned to gain share as these inflections happen in all of those different markets.

Speaker #5: And again, what I would say, if you look at the mix of business going forward, the AI compute innovations are really going to drive in 26, 27, and going forward, leading edge foundry logic, DRAM, high bandwidth memory, and advanced packaging.

Speaker #5: And those are the areas where Applied has tremendous strength. And we are absolutely positioned to gain share as these inflections happen in all of those different markets.

Speaker #4: Thanks a lot, Gary.

Timothy Arcuri: Thanks a lot, Gary.

Speaker #3: Thank you. And our next question comes to the line of Harlan Serf from JPMorgan. Your question, please.

Operator: Thank you. Our next question comes from the line of Harlan Sur from JPMorgan. Your question please.

Speaker #6: Yeah, good afternoon. Thanks for letting me ask a question. In addition to technology migration and greenfield capacity build-outs, your customers are looking at their existing capacity footprints.

Harlan Sur: Yeah, good afternoon. Thanks for letting me ask a question. You know, in addition to technology migration and greenfield capacity build-outs, your customers are looking at their existing capacity footprints. They're trying to figure out how they can squeeze more wafers out of their fabs, more good die per wafer. Focusing essentially on throughput and/or focusing on yield or both ways. Is the Applied team seeing this, and is this an incremental driver of growth, more tool sales to alleviate bottlenecks, maybe upgrades to improve tool throughput, or maybe advanced services and analytics adoption to improve productivity and yields? Is this driving some of the incremental growth?

Speaker #6: They're trying to figure out how they can squeeze more wafers out of their fabs, more good diaper wafers. So focusing essentially on throughput and/or focusing on yield or both, right?

Speaker #6: Is the applied team seeing this? And is this an incremental driver of growth, more tool sales to alleviate bottlenecks? Maybe upgrades to improve tool throughput or maybe advanced services and analytics adoption to improve productivity and yields?

Speaker #6: Is this driving some of the incremental growth?

Speaker #4: Yeah, thanks for the question, Harlan. Yeah, absolutely. And I mentioned this a little bit earlier. Output and yield innovation is really a key focus for all of our customers.

Gary Dickerson: Yeah. Thanks for the question, Harlan. Yeah, absolutely. I mentioned this a little bit earlier, output and yield innovation is really a key focus for all of our customers. Again, it takes time for them to create more floor space to ramp their factories. There is a huge focus and engagement, this is really helping us to drive our service growth rate, you know, at a higher pace than we've seen in the past or even that we were anticipating in the past. That's where I would also come back to how we're implementing AI inside Applied Materials. We have all of these connected chambers. Most of them are connected remotely, we can have instantaneous experts connected into all of those different chambers.

Speaker #4: Again, it takes time for them to create more floor space, to ramp their factories. So there is a huge focus and engagements. And this is really helping us to drive our service growth rate at a higher pace than we've seen in the past or even that we were anticipating in the past.

Speaker #4: And that's where I would also come back to how we're implementing AI inside applied materials. We have all of these connected chambers. Most of them are connected remotely.

Speaker #4: So we can have instantaneous experts connected into all of those different chambers. And again, this is elevating, increasing our expectations for our service growth rate going forward.

Gary Dickerson: Again, this is elevating, increasing our expectations for our service growth rate going forward.

Speaker #6: Yeah, thank you for that. And then maybe for Bryce, in addition to the strong growth in AGS, those margins improved 30 basis points sequentially, 120 basis points year over year.

Harlan Sur: Yeah. Thank you for that. Maybe for Brice, you know, in addition to the strong growth in AGS, those margins improved 30 basis points sequentially, 120 basis points year over year. Operating margins grew 100 basis points sequentially to 29%, right? I think that's, like, the highest level in, like, the past 2 or 3 years. On the gross margin improvements, how much of this is just more a touch of some of the higher value-added services like your AIx software suite, remote tool monitoring solutions, which I assume are all gross margin accretive? On the strong operating margins, I did notice that your OpEx for that segment was down about 8% sequentially. Was that just cost efficiency activities or does that delta come back this quarter?

Speaker #6: Operating margins grew 100 basis points sequentially to 29%, right? I think that's like the highest level in the past two or three years. On the gross margin improvements, how much of this is just more attached to some of the higher value added services like your AIX software suite, remote tool monitoring solutions, which I assume are all gross margin or creative?

Speaker #6: And then on the strong operating margins, I did notice that your OPEX for that segment was down about 8% sequentially. Was that just cost efficiency activities or does that delta come back this quarter?

Speaker #1: All right, thanks for the question. So, on the gross margins there, I think the mix to more transactional and more spare parts in the quarter has helped us.

Brice Hill: Hi, thanks for the question. On the gross margins there, I think the mix to more transactional, more spare parts in the quarter have helped us. That's one of the drivers. You're right, the new service products that we're providing also help from a margin perspective. I think those are the major drivers. I think on the expense side, you know, we did some, we did some restructuring that helped us with expenses. I would expect that, you know, we're continuing to invest in that business. We're building a training center. We're adding to our customer engineers and essentially expanding for the ramp at this point. No change in expectations from a spending perspective.

Speaker #1: So that's one of the drivers. You're right. The new service products that we're providing also help from a margin perspective. So I think those are the major drivers.

Speaker #1: And I think on the expense side, we did some restructuring that helped us with expenses, but I would expect that we're continuing to invest in that business.

Speaker #1: We're building a training center. We're adding to our customer engineers. And essentially, expanding for the ramp at this point. So no change in expectations from a spending perspective.

Speaker #1: I think the margins are at a healthy spot at this point.

Brice Hill: I think the margins are at, you know, at a healthy spot at this point.

Harlan Sur: Agree. Thank you very much.

Speaker #6: Agreed. Thank you very much.

Speaker #3: Thank you. And our next question comes to the line of ATEF Malik from Citi. Your question, please.

Operator: Thank you. Our next question comes from the line of Atif Malik from Citi. Your question please.

Speaker #7: Hi, thank you for taking my question. Gary, with your acquisition of Next, in panel level packaging, can you help us understand how does that fit with your JV with Bessie?

Atif Malik: Hi, thank you for taking my question. Gary, with your acquisition of NEXX, in panel level packaging, can you help us understand how does that fit with your JV with BESI, and what is the adoption timeline for a large panel packaging?

Speaker #7: And what is the adoption timeline for large panel packaging?

Speaker #4: Oh, thanks for the question. So I would say that we are the leader in packaging. I mentioned earlier on the call, we're going to grow that business over 50% this year.

Gary Dickerson: Thanks for the question, Atif. I would say that we are the leader in packaging. I mentioned earlier on the call, we're gonna grow that business over 50% this year. I would say that in the entire semiconductor industry, this is one of the most exciting areas, driving compute architecture innovation. How you connect computing components together in large body sizes is an enormous focus for everybody. At Applied, we have been investing, you mentioned the hybrid bonding technology and the acquisition of NEXX. That's a leading supplier of large area packaging electroplating. There are a number of different innovations that we're driving, this fits into that overall strategy, where we also have a full flow packaging EPIC Center that is the only one in the industry.

Speaker #4: And I would say that in the entire semiconductor industry, this is one of the most exciting areas driving compute architecture innovation. So how you connect computing components together in large body sizes is an enormous focus for everybody.

Speaker #4: So at Applied, we have been investing you mentioned the hybrid bonding technology and the acquisition of Next that's a leading supplier of large area packaging electroplating.

Speaker #4: There are a number of different innovations that we're driving, and this fits into that overall strategy, where we also have a full-flow packaging epicenter.

Speaker #4: That is the only one in the industry. We're engaged with all of our existing customers and then also there are a number of people working on new large body size architectures.

Gary Dickerson: We're engaged with all of our existing customers. Also, there are a number of people working on new large body size architectures, again, to really drive tremendous improvements in performance and power, the tokens per second per watt. This is all part of that overall strategy that we've been investing in the last few years. You see, again, over 50% growth this year in our packaging business. Next year, we anticipate also strong growth. The timing for those architectures, I would say that, you know, there is a tremendous amount of focus to bring those architectures to market as fast as possible. I'd really rather not comment on specific timing.

Speaker #4: Again, to really drive tremendous improvements in performance and power, the tokens per second per watt. So this is all part of that overall strategy that we've been investing in the last few years.

Speaker #4: You see, again, over 50% growth this year. In our packaging business, next year, we anticipate also strong growth. And the timing for those architectures I would say that there is a tremendous amount of focus to bring those architectures to market as fast as possible.

Speaker #4: I'd really rather not comment on specific timing. I would just say that Applied, we have deep connectivity across the entire ecosystem with all of those people that are driving those new architectures.

Gary Dickerson: I would just say that Applied, we have deep connectivity across the entire ecosystem, All of those people that are driving those new architectures, we have the broadest packaging portfolio in the industry, and we are really at the foundation of the key innovations needed to enable those new architectures.

Speaker #4: We have the broadest packaging portfolio in the industry. And we are really at the foundation of the key innovations needed to enable those new architectures.

Speaker #6: Great. Let me follow up. Bryce, I understand you guys do not comment on a particular project, but you said there are 10 new projects in the pipeline and there's a lot of investor interest in Terrafab.

Atif Malik: Great. As a follow-up, Brice, I understand you guys do not comment on a particular project, but you said there are 10 new projects in the pipeline, and there's a lot of investor interest in Terafab. Will that be a project that will be in the pipeline or is that more like next year?

Speaker #6: Will that be a project that will be in the pipeline or is that more like next year?

Speaker #1: Well, just to correct the record, I said more than 10. And you're right. I can't name any I can't be specific about any of those.

Brice Hill: Well, just to correct the record, I said more than 10. You're right, I can't name any, I can't be specific about any of those.

Speaker #6: Thank you.

Atif Malik: Thank you.

Brice Hill: Sorry.

Speaker #1: Sorry.

Speaker #3: Thank you. And our next question comes to the line of Krish Sankar from TD Cowan. Your question, please.

Operator: Thank you. Our next question comes from the line of Krish Sankar from TD Cowen. Your question please.

Speaker #4: Yeah, thanks for taking my question. Gary, the first one for you. Applied had an interesting slide at SPIE that showed DRAM 1 Delta noted to be more litho-intensive compared to 1 Gamma.

Krish Sankar: Yeah, thanks for taking my question. Gary, the first one for you. Applied had an interesting slide at SPI that showed DRAM 1-delta node to be more litho intensive compared to 1-gamma. Obviously you have 4F² coming after that, which is more depth and etch intensive. I'm wondering, do you expect 1-delta to be a big node? If so, could that slow down the depth and etch intensity in DRAM on an interim basis?

Speaker #4: And obviously, you have 4F squared coming after that, which is more depth and edge intensive. So I’m wondering, do you expect 1 Delta to be a big node, and if so, could that slow down the depth and edge intensity in DRAM on an interim basis?

Speaker #5: Yeah, thanks, Krish. For the question. So let me from an overall standpoint, DRAM, we are the number one process equipment provider. And there's innovation happening at 6F squared, 4F squared, and certainly going forward to 3D DRAM.

Gary Dickerson: Thanks, Krish, for the question. Let me, from an overall standpoint, DRAM, we are the number one process equipment provider. There's innovation happening at 6F², 4F², and certainly, you know, going forward to 3D DRAM. If I look at Applied in terms of near-term innovation, periphery CMOS logic being upgraded for higher performance and lower power transistors is a strong driver for our DRAM business, including very strong growth in epi. Of course, in DRAM, HBM packaging is a huge focus for everyone, stacking more chips vertically. Then, you know, for Applied, materials deposition with wiring and patterning, we have very strong positions, leadership in conductor etch and E-beam technologies in DRAM.

Speaker #5: So if I look at Applied in terms of near-term innovation, periphery CMOS logic being upgraded for higher performance, and lower power transistors, is a strong driver for our DRAM business, including very strong growth in EPI.

Speaker #5: Of course, in DRAM, HBM packaging is a huge focus for everyone. Stacking more chips, vertically, and then for Applied, materials deposition with wiring and patterning and we have very strong positions leadership and conductor edge and E-beam technologies in DRAM.

Speaker #5: So what I would say is that there is a lot of innovation happening in 6F squared that really extends our process equipment leadership and is contributing to the growth that we're talking about on the call here today.

Gary Dickerson: What I would say is that there is a lot of innovation happening in 6F² that really extends our process equipment leadership and is contributing to the growth that we're talking about on the call here today. We're even better positioned for 4F² and 3D DRAM. I think if you remember over the last little more than 10 years, we gained 10 points of overall share in WFE and DRAM. We've been really performing incredibly well over the last few years, and then this year is another great year for our DRAM business. You know, I think for Applied, we're in a great position.

Speaker #5: And we're even better positioned for 4F squared and 3D DRAM. I think if you remember, over over the last little more than 10 years, we gained 10 points of overall share in WFE and DRAM.

Speaker #5: We've been really performing incredibly well over the last few years and then this year is another great year for our DRAM business. So I think for Applied, we're in a great position.

Speaker #5: And relative to litho-intensity I believe that going forward for sure, materials intensity will increase, especially with 3D DRAM. And we're in a great position with 6F squared innovation, 4F squared, and 3D DRAM.

Gary Dickerson: Relative to litho intensity, I believe that going forward, for sure, materials intensity will increase, especially with 3D DRAM, and we're in a great position with 6F² innovation, 4F², and 3D DRAM.

Speaker #6: Got it. Thanks for the getting. This is a quick follow-up either for you or Bryce. I understand your customers were giving visibility into 2028.

Krish Sankar: Thanks for that, Gary. A quick follow-up, maybe for you, Brice. I understand your customers are giving visibility into 2028. I understand for your capacity and personal planning purposes, there are also some new greenfield in NAND scheduled for 2028. Is it fair to assume 2028 could be another growth year for WFE after impressive 2026 and 2027, or is it too early to make that call?

Speaker #6: I understand for your capacity and personal planning purposes, but also some new greenfield and land scheduled for 2028. Is it fair to assume 2028 could be another growth year for WFE after impressive 26 and 27?

Speaker #6: Or is it too early to make that call?

Speaker #1: We don't think it's too early, Krish. I think we think it's secular growth. AI is the headline workload. That's driving the secular growth. So we think you'll see more and more capacity plans from customers.

Brice Hill: We don't think it's too early, Krish. I think we think it's secular growth. You know, AI is the headline workload that's driving the secular growth. We think you'll see more and more capacity plans from customers. That's the expectation, is You know, right now it is factory limited as we've said, we expect customers to continue adding projects to grow the outlook.

Speaker #1: That's the expectation is right now it is factory limited as we've said. But we expect customers to continue adding projects to grow the outlook.

Speaker #6: Thanks, Bryce.

Krish Sankar: Thanks, Brice.

Speaker #3: Thank you, and our next question comes to the line of Shane Brett from Morgan Stanley. Your question, please.

Operator: Thank you. Our next question comes to the line of Shane Brett from Morgan Stanley. Your question please.

Speaker #7: Thank you for letting me ask a question. And my first question is, so the Gartner data showed that your conductor edge market share picked up about 300 basis points in 2025 despite weaknesses in other areas of your portfolio.

Shane Brett: Thank you for letting me ask a question. My first question is, the Gartner data showed that your conductor etch market share picked up about 300 basis points in 2025, despite, you know, weaknesses in other areas of your portfolio. Apologies, this is a bit of a trailing, you know, backwards-looking question, but how should we think about where those share gains came from? How should we think about your path towards being a market leader in this space? Where are those sort of incremental share gains going forward going to come from for your conductor etch business? Thank you.

Speaker #7: Apologies, this is a bit of a trailing, backwards-looking question, but how should we think about where those share gains come from? How should we think about your path towards being a market leader in this space?

Speaker #7: And where are those sort of incremental share gains going forward going to come from for your conductor edge business? Thank you.

Speaker #5: Yeah, Shane, thanks for the question. So let me talk about going forward, and then I'll talk about the overall market environment. So, this year, Edge will be one of our fastest-growing businesses.

Gary Dickerson: Shane. Thanks for the question. Etch, let me talk about going forward, and then I'll talk about the overall market environment. This year, etch will be one of our fastest-growing businesses this calendar year, and Applied is number one in conductor etch for leading edge foundry logic, gate-all-around nodes, and number one in conductor etch for DRAM. Both of those areas I talked about earlier on the call are some of the fastest-growing, certainly in 2026 and going forward. You know, we've been building a stronger position in leading edge foundry logic. We've always been very strong in DRAM. In our products, Sym3 is the fastest ramping product in Applied's history. We recently talked in one of our master classes about our new Sym3 Z platform.

Speaker #5: This calendar year. And Applied is number one in conductor edge for leading edge foundry logic, gate all-around nodes, and number one in conductor edge for DRAM.

Speaker #5: And both of those areas I talked about earlier on the call are some of the fastest growing certainly in 26 and going forward. So we've been building a stronger position in leading edge foundry logic.

Speaker #5: We've always been very strong in DRAM. And in our products, SIM3 is the fastest-ramping product in Applied's history. We've recently talked in one of our master classes about our new SIM3Z platform.

Speaker #5: We've seen strong adoption there, with more than 250 chambers, and multi-hundreds of millions of dollars of growth in edge. So I think we're really, really in a great position—as I said, one of the fastest growing businesses this calendar year.

Gary Dickerson: We've seen strong adoption there with more than 250 chambers, multi-hundreds of millions of dollars of growth in etch. I think we're really in a great position, as I said, one of the fastest-growing businesses this calendar year. The other thing is really the opportunity for us to co-optimize across our whole portfolio. When we're working with our customers on new architectures, whether it's gate-all-around or wiring or new DRAM architectures, you know, really that opportunity to co-optimize helps us. We have great technology, but also we have great integration capabilities that's helping us grow this business at a high rate.

Speaker #5: The other thing is really the opportunity for us to co-optimize across our whole portfolio. So when we're working with our customers on new architectures—whether it's gate-all-around, wiring, or new DRAM architectures—really that opportunity to co-optimize helps us.

Speaker #5: We have great technology, but we also have great integration capabilities that are helping us grow this business at a high rate.

Speaker #7: Great. Thank you. And for my follow-up, this may be a little bit critical, but your process control market share continues to decline contrary to conductor edge where you are seeing share gains?

Shane Brett: Great. Thank you. For my follow-up, this may be a little bit critical, but your process control market share continues to decline, contrary to conductor etch, where you are seeing share gains. My question is just how do you see the strategic importance of your process control business within your broader franchise? Thank you.

Speaker #7: My question is just how do you see the strategic importance of your process control business within your broader franchise? Thank you.

Speaker #5: Well, I believe this is one of our best opportunities overall within Applied Materials. So last year we grew this business at a high rate.

Gary Dickerson: Well, I believe this is one of our best opportunities overall within Applied Materials. Last year, we grew this business at a high rate. This year, PDC is gonna be one of our fastest-growing businesses. You know, I'm very, very positive on the growth in 2026, and I'm even more positive about our growth going forward. We have clear leadership in E-beam with our cold field emission technology that gives us the highest resolution and the fastest imaging. This year, our optical inspection business is also on track for strong growth. We have a great pipeline of new technologies that we're going to introduce over the next couple of years that will also drive significant growth in PDC. One of our fastest-growing businesses this year, positioned for strong growth in 2027 and as we go forward.

Speaker #5: This year, PDC is going to be one of our fastest-growing businesses. And I'm very, very positive on the growth in '26. And I'm even more positive about our growth going forward.

Speaker #5: We have clear leadership in E-beam with our cold field emission technology that gives us the highest resolution. And the fastest imaging. This year our optical inspection business is also on track for a strong growth.

Speaker #5: We have a great pipeline of new technologies that we're going to introduce over the next couple of years. That will also drive significant growth in PDC.

Speaker #5: So one of our fastest growing businesses this year positioned for strong growth in 27. And as we go forward. And the other thing I would add is there's great synergy with our E-beam leadership with the rest of Applied Materials in accelerating learning rate.

Gary Dickerson: The other thing I would add is there's great synergy with our E-beam leadership with the rest of Applied Materials in accelerating learning rate. Our process equipment teams, they're using this leadership in E-beam imaging to optimize processes at a faster pace. That is helping us to drive growth in our process equipment business on top of PDC being a great growth business in and of itself. Again, I don't share your view on, you know, the, the perspective on the business. I think this is a great business, one of our fastest-growing this year, and I'm very optimistic we're going to keep this growth going going forward.

Speaker #5: So, our process equipment teams—they're using this leadership in E-beam imaging to optimize processes at a faster pace. So that is helping us to drive growth in our process equipment business, on top of PDC being a great growth business in and of itself.

Speaker #5: So again, I don't share your view on the perspective on the business. I think this is a great business, one of our fastest growing this year.

Speaker #5: And I'm very optimistic we're going to keep this growth going, going forward.

Speaker #7: Great. Thank you very much.

Shane Brett: Great. Thank you very much.

Speaker #3: Thank you. And our next question comes from the line of Joe Quattrochi from Wells Fargo. Your question, please.

Operator: Thank you. Our next question comes from the line of Joseph Quattrocchi from Wells Fargo. Your question, please.

Speaker #1: Yeah, thanks for taking the questions. I was wondering if you could talk about just Applied's position for greenfield versus upgrades. I would assume given your portfolio depth and just the number of new greenfield fab projects expanding into next year, how do we think about just the accelerating growth opportunity for Applied relative to peers?

Joseph Quattrocchi: Yeah, thanks for taking the questions. I was wondering if you could talk about just Applied's position for greenfield versus upgrades. I would assume, given your portfolio depth and just the number of new greenfield fab projects, you know, expanding into next year, how do we think about just the accelerating growth opportunity for Applied relative to peers?

Joe Quatrochi: Yeah, thanks for taking the questions. I was wondering if you could talk about just Applied's position for greenfield versus upgrades. I would assume, given your portfolio depth and just the number of new greenfield fab projects, you know, expanding into next year, how do we think about just the accelerating growth opportunity for Applied relative to peers?

Speaker #8: Hi, Joe. It's Brice. Yeah, I think most of the projects we track are greenfield projects, especially on the logic side. We do very well on greenfields.

Brice Hill: Hi, Joe. It's Brice. I think most of the projects we track are greenfield projects, especially on the logic side. We, you know, we do very well on greenfield. That's probably the best intensity from a Applied perspective. We also do well on upgrades. The one place that that's different is NAND. We don't participate as much in upgrades. I think what you're seeing in the environment is just a continued search for more and more floor space and more equipment being put in place. You see that in DRAM, you see that in leading logic, and of course, that's been the case in ICAPS as significant new capacity has been added over the last several years. I think a lot of that investment is greenfield.

Speaker #8: That's probably the best intensity from an Applied perspective. We also do well on upgrades. The one place that that's different is NAND. We don't participate as much in upgrades.

Speaker #8: But I think what you're seeing in the environment is just a continued search for more and more floor space and more equipment being put in place.

Speaker #8: You see that in DRAM. You see that in leading logic. And of course, that's been the case in ICAPS as significant new capacity has been added over the last several years.

Speaker #8: So I think a lot of that investment is greenfield.

Joseph Quattrocchi: Thanks. As a follow-up, you know, increasing the AGS long-term growth expectation, can you help us just kind of bridge the gap? You know, I think the prior target had included the 200 millimeter business, you know, that's now moved into Semiconductor Systems. I guess, like, how do we think about the impact of that for the increase in the growth expectation?

Joe Quatrochi: Thanks. As a follow-up, you know, increasing the AGS long-term growth expectation, can you help us just kind of bridge the gap? You know, I think the prior target had included the 200 millimeter business, you know, that's now moved into Semiconductor Systems. I guess, like, how do we think about the impact of that for the increase in the growth expectation?

Speaker #1: Thanks. And then as a follow-up, increasing the AGS long-term growth expectation, can you help us just kind of bridge the gap? I think the prior target had included the 200-millimeter business that's now moved into the systems.

Speaker #1: So, I guess, how do we think about the impact of that for the increase in the growth expectation?

Speaker #8: Yeah, Joe. So that should be a clean look at this point. So we've moved the 200-millimeter equipment business and restated our financials, or recast our financials.

Brice Hill: Yeah. Joe, that should be a clean look at this point. We've moved the 200 millimeter equipment business and restated our financials or recast our financials. That's all in our Semiconductor Systems business at this point. When we look forward on AGS, we're only talking about the services business, and you may have heard, I just updated our outlook for that and said mid-teens for the AGS business is sort of a good multi-year growth rate assumption. We expect to be higher this year because we have a increase in utilization across the ecosystem and an increase in the number of new fabs ramping relative. There's a step-up this year that helps that business be higher than the mid-teens.

Speaker #8: So that's all in our Systems business at this point. So when we look forward on AGS, we're only talking about the Services business. And you may have heard I just updated our outlook for that and said mid-teens for the AGS business is sort of a good multi-year growth rate assumption.

Speaker #8: And then we expect to be higher this year. Because we have an increase in utilization across the ecosystem and an increase in the number of new fabs ramping relative.

Speaker #8: So there's a step up this year. That helps that business be higher than the mid-teens.

Speaker #1: Great. And operator, we have time for two more questions today, please.

Joseph Quattrocchi: Great.

Joe Quatrochi: Great.

Brice Hill: Thanks.

Michael Sullivan: Operator, we have time for 2 more questions today, please.

Speaker #8: Certainly. And our next question comes from the line. Of Jim Schneider from Goldman Sachs. Your question, please.

Operator: Certainly. Our next question comes from the line of James Schneider from Goldman Sachs. Your question, please.

Speaker #9: Good evening. Thanks for taking my question. Your mix of business this quarter pivoted quite strongly again to foundry logic. I'm curious as you look into the back half of this year whether you see more of a return to spending in greater concentration to DRAM and then on a preliminary basis as you look into 2027, which do you expect to be the fastest growing technology area?

James Schneider: Good evening. Thanks for taking my question. You know, your mix of business this quarter pivoted quite strongly again to foundry logic. I'm curious, as you look into H2 of this year, whether you see more of a return to spending in greater concentration to DRAM. On a preliminary basis, as you look into 2027, which do you expect to be the fastest-growing technology area?

Speaker #8: All right. Thanks, Jim. Yes. In the second half, it goes back to the theme that we've been describing. You're going to see strong growth in leading edge logic in DRAM.

Brice Hill: Hi. Thanks, Jim. Yes, in H2, it goes back to the theme that we've been describing. You're gonna see strong growth in leading edge logic, in DRAM, in advanced packaging, and actually in NAND also. You're seeing a pull really, you know, from the headliner AI across the entire end market grouping, with the exception of ICAPS. ICAPS, you know, goes back to, there'll be some digestion with all the capacity that's been put in place the past couple of years. We didn't call, you know, we didn't call a fast grower between DRAM and Leading Logic. I think both of those will be accelerating in H2.

Speaker #8: In advanced packaging, and actually NAND also, you're seeing a pull really from the headliner AI across the entire end market grouping, with the exception of ICAPS.

Speaker #8: So ICAPS goes back to there'll be some digestion with all the capacity that's been put in place the past couple of years. And we didn't call we didn't call a fast grower between DRAM and leading logic.

Speaker #8: I think both of those will be accelerating in the second half.

Speaker #9: And then, as you—thank you. And then, as you look at your customers' longer-term plans, can you maybe share where they're seeing the greatest upside to the longer-term forecast across those same areas?

James Schneider: Thank you. As you look at your customers' longer-term plans, can you maybe share where they're seeing the greatest upside to the longer-term forecast across those same areas? Thank you.

Speaker #9: Thank you.

Brice Hill: That's a good question. I think we haven't answered, you know, which one between DRAM and Leading Logic will be the most growth across the multi-year horizon. We think both of those will be very strong, actually, advanced packaging goes right with it. On the NAND, you know, we did raise our bit growth forecast for NAND, probably a few percentage points. At least our view is it will still be satisfied by upgrades, we don't expect a lot of new wafer starts on the NAND side. We do think the demand forecast for bits has gone up on NAND.

Speaker #8: That's a good question. I think we haven't answered which one between DRAM and leading logic will see the most growth across the multi-year horizon.

Speaker #8: We think both of those will be very strong. And actually advanced packaging goes right with it. On the NAND, we see we did raise our BIC growth forecast for NAND.

Speaker #8: So probably a few percentage points. And at least our view is it will still be satisfied by upgrades. So we don't expect a lot of new wafer starts on the NAND side.

Speaker #8: But we do think the demand forecast for BICs has gone up on NAND.

Speaker #9: Yeah, Jim, just also part of the question you asked earlier—we see a similar profile in 2027 to what we're seeing in 2026. And really, that's being driven by AI computing.

Gary Dickerson: Yeah, Jim, just also, part of the question you asked earlier, we see a similar profile in 2027 to what we're seeing in 2026, and really, that's being driven by AI computing. The markets that are growing the fastest in 2026, we think they continue to grow at that same rate as a percentage of the mix in 2027 and going forward.

Speaker #9: The markets that are growing the fastest in 2026, we think they continue to grow at that same rate as a percentage of the mix.

Speaker #9: In 2027 and going forward.

Speaker #8: Thank you.

James Schneider: Thank you.

Speaker #3: Thank you. And our final question for today then comes from the line of Melissa Weathers from Deutsche Bank. Your question, please.

Michael Sullivan: Thank you. Our final question for today then comes from the line of Melissa Weathers from Deutsche Bank. Your question please.

Speaker #10: Hi. Thank you so much. I just want to touch really quickly on the ICAPS side that Bryce you kind of just talked about. But I think if we look at a lot of the analog reports this earnings season, it does seem like inventories are starting to lean out and maybe utilizations of those fabs are starting to get better.

Melissa Weathers: Hi, thank you so much. I just wanna touch really quickly on the ICAPS side that, Brice, you kind of just talked about. I think if we look at a lot of the analog reports, this earnings season, it does seem like inventories are starting to lean out and maybe utilizations at those fabs are starting to get better. I realize it's not the fastest growing part of your business, but any updated outlook you guys have on maybe when we could see some more material spending on that core ICAPS business going forward?

Speaker #10: So I realize it's not the fastest growing part of your business. But any updated Outlook you guys have on maybe when we could see some more material spending on that core ICAPS business going forward?

Speaker #8: Hi, Melissa. Good question. And that's a great point. There are some strong areas in ICAPS. I think analog and photonics power chips are all areas that we're seeing that are very strong.

Brice Hill: Hi, Melissa. Good question. That's a great point. There are some strong areas in ICAPS. I think analog and photonics, power chips are all areas that, you know, we're seeing that are very strong. That makes sense to us. I would just encourage investors to think, you know, ICAPS is still a very strong market. It's one of our largest markets. I think this is the first year in a few years where Leading Logic is actually ahead of ICAPS is still plugging along, still adding capacity at a significant rate. It'll just be, you know, it just won't grow a lot year over year until we digest the capacity. The utilizations have improved in ICAPS, so to your point, I think 300 millimeter utilizations are in a very healthy range at this point.

Speaker #8: So that makes sense to us. I would just encourage investors to think ICAPS is still a very strong market. It's one of our largest markets.

Speaker #8: I think this is the first year in a few years where leading logic is actually ahead of ICAPS. But ICAPS is still plugging along.

Speaker #8: Still adding capacity at a significant rate. It'll just be it just won't grow a lot year over year until we digest the capacity. The utilizations have improved in ICAPS.

Speaker #8: So to your point, I think 300-millimeter utilizations are in a very healthy range at this point. So when we look forward, we expect ICAPS, from an equipment perspective, to eventually start growing at the same rate the devices are, which is mid- to high-single digits.

Brice Hill: When we look forward, we expect ICAPS, you know, from an equipment perspective, to eventually start growing at the same rate the devices are, which is mid to high single digits. We just have to get past this period where, you know, utilizations catch up with the installed capacity.

Speaker #8: We just have to get past this period where utilizations catch up with the installed capacity.

Speaker #10: Got it. Thank you. If I can squeeze one last one in and then end the call. Just the Epic Center. I know you guys are a couple of months away from unveiling that.

Melissa Weathers: Got it. Thank you. If I can squeeze one last one in in the end of the call, just the EPIC Center. I know you guys are a couple of months away from unveiling that, so just any last couple statements you can make on what that could do to drive innovation and, I don't know if it would be share gains or competitive advantage, but anything on the EPIC Center we should look forward to?

Speaker #10: So just any last couple of statements you can make on what that could do to drive innovation and, I don't know, if it would be share gains or competitive advantage.

Speaker #10: But anything on the Epic Center we should look forward to?

Speaker #9: Yeah. Thanks. Thanks, Melissa. I'm really excited about the Epic Center. I mean, again, all of our customers in the entire ecosystem really is in a race for leadership for AI computing.

Gary Dickerson: Thanks, Melissa. I'm really excited about the EPIC Center. I mean, again, all of our customers in the entire ecosystem really is in a race for leadership for AI computing. That is really driving our businesses in leading-edge foundry logic, DRAM, high-bandwidth memory, and advanced packaging. Really, when you think about architecture innovation, Applied's material innovations are really at the foundation of all of those architecture innovations across all of those fast-growing segments. Having our customers and partners co-located with these technologies that are enabling the architecture innovations here in our EPIC Center and co-located with our innovators is going to be an acceleration for Applied and for the entire industry. We've announced eight partners that we talked about earlier, TSMC, Samsung, SK hynix, Micron, Advantest, ASU, RPI, Stanford, we will be adding more soon.

Speaker #9: That is really driving our businesses and leading edge foundry logic, DRAM, high bandwidth memory, and advanced packaging. And really, when you think about architecture innovation, applied material innovations are really at the foundation of all of those architecture innovations.

Speaker #9: Across all of those fast-growing segments, having our customers and partners co-located with these technologies that are enabling the architecture innovations here in our Epic Center, and co-located with our innovators, is going to be an acceleration for Applied and for the entire industry.

Speaker #9: We've announced eight partners that we talked about earlier: TSMC, Samsung, Hynix, Micron, Advantest, ASU, RPI, and Stanford. And we will be adding more soon. For Applied, it gives us better multi-node visibility because, again, we're working many generations out in the future with all of these different companies.

Gary Dickerson: For Applied, it gives us better multi-node visibility because, again, we're working many generations out in the future with all of these different companies and really co-innovating. We are working with them to create these new architectures in the EPIC Center. It also enables us to be designed in with our equipment and our advanced services for those new architectures. I'm really excited about the EPIC Center. I think this is the right strategy at the right time. It's going to be an accelerator for our customers and for Applied Materials.

Speaker #9: And really, co-innovating. We are working with them to create these new architectures in the Epic Center. And it also enables us to be designed in with our equipment and our advanced services for those new architectures.

Speaker #9: So I'm really excited about the Epic Center. I think this is the right strategy at the right time. And it's going to be an accelerator for our customers and for applied materials.

Speaker #10: Thank you.

Melissa Weathers: Thank you.

Speaker #11: Well, thank you, Melissa, for your questions. And now, Bryce, would you like to give us your closing thoughts?

Michael Sullivan: Well, thank you, Melissa, for your questions. Now, Brice, would you like to give us your closing thoughts?

Speaker #8: Excellent. Thanks, Mike. We're really pleased with the investments we've made. It puts us in a great position as AI drives incremental demand across the industry.

Brice Hill: Excellent. Thanks, Mike. We're really pleased with the investments we've made, puts us in a great position as AI drives incremental demand across the industry. We're in a strong position to grow revenue, expand margins, and increase operating leverage. We have a number of upcoming events to call to your attention. Next week, Tim Deane from our services business will be at the JPMorgan conference in Boston. The following week, Gary will be at the Bernstein conference in New York, the week after that, I'll be at the BofA conference in San Francisco. We hope to see many of you at those events. Mike, please go ahead and close the call.

Speaker #8: We're in a strong position to grow revenue, expand margins, and increase operating leverage. We have a number of upcoming events to call to your attention.

Speaker #8: Next week, Tim Dean from our services business will be at the JPMorgan conference in Boston. The following week, Gary will be at the Bernstein conference in New York.

Speaker #8: And the week after that, I'll be at the BofA Conference in San Francisco. We hope to see many of you at those events.

Speaker #8: Mike, please go ahead and close the call.

Speaker #11: All right. Great. Thank you, Brice. And we'd like to thank everybody for joining us today. A replay of the call is going to be available on the IR page of our website by 5:00 Pacific Time.

Michael Sullivan: All right. Great. Thank you, Brice. We'd like to thank everybody for joining us today. A replay of the call is gonna be available on the IR page of our website by 5:00 Pacific Time. We would now like to thank you for your continued interest in Applied Materials.

Speaker #11: And we would now like to thank you for your continued interest in applied materials.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.