AMAT's Display Revenues Rebound: Is it a Sign of Stability?

Applied Materials' display and adjacent segment demonstrates robust growth, with Q3 2025 revenues up 4.8% and Q4 2025 projected to jump 66% year-over-year to $350 million, fueled by expanding OLED adoption and its proprietary MAX OLED technology. Despite this strong operational performance and a lower forward price-to-sales multiple than the industry, AMAT's stock has underperformed its semiconductor peers year-to-date, and recent fiscal 2026/2027 earnings estimates have seen downward revisions, resulting in a Zacks Rank #4 (Sell).

Analysis

Applied Materials (AMAT) presents a conflicting profile, with its display and adjacent segment demonstrating significant operational momentum while broader market sentiment and stock performance lag. The display segment's revenue grew 4.8% year-over-year in Q3 2025, following a 44.7% jump in the prior quarter, and is projected to accelerate to 66% year-over-year growth in Q4 2025, reaching $350 million. This growth is underpinned by strong secular demand for OLED screens and the company's proprietary MAX OLED technology, which enhances key display metrics, contributing to a healthy non-GAAP operating margin of 23.6% for the segment. However, this operational strength is overshadowed by several red flags. The company's stock has declined 1.8% year-to-date, starkly underperforming the semiconductor industry's 14.2% growth. Furthermore, despite a seemingly attractive forward price-to-sales multiple of 4.27x versus the industry's 8.5x, consensus earnings estimates for fiscal 2026 and 2027 have been revised downward, with projected earnings growth decelerating sharply from 8.32% in fiscal 2025 to just 1.54% in fiscal 2026. This disconnect culminates in a Zacks Rank of #4 (Sell), suggesting that near-term operational success in a single segment may not be enough to offset broader concerns weighing on the company's overall outlook.

Key Decisions for Investors

• Given the stock's significant year-to-date underperformance and recent downward revisions to forward earnings estimates, investors should treat the strong display segment results with caution as they are not currently translating to positive overall sentiment.
• Potential investors should investigate the root causes of the decelerating earnings growth and negative analyst revisions before considering the low forward P/S ratio an entry point, as it may signify a value trap.
• Monitor the upcoming Q4 results to see if the projected 66% YoY growth in the display segment materializes and, more importantly, if management provides guidance that reverses the negative trend in overall earnings estimates.