Applied Materials (NASDAQ: AMAT) delivered its strongest quarter on record on Wednesday, August 13, 2026, and raised guidance for the current quarter to another all-time high. Investors sold it anyway. Shares closed the regular session at $534.54, down 2.5%, then fell a further 5% in after-hours trading as traders digested a print that was almost too clean — and a shift in the geographic mix that keeps getting harder to ignore.
The tension is familiar to anyone who has watched the wafer-fab-equipment (WFE) cycle: an AI-fueled DRAM and leading-edge foundry-logic boom is more than offsetting a shrinking China business, but China is shrinking faster than most models assumed. Whether that is a Q3 anomaly or the start of a durable derating is the debate on the sell side this morning.
Q3 FY2026 in one table
Per Applied’s Q3 FY2026 earnings release filed with the SEC as Exhibit 99.1 to an 8-K, revenue rose 25% year over year to a record $9.12 billion. Non-GAAP EPS hit a record $3.50, up 41%. GAAP operating margin expanded 3.1 points to 33.7%. Free cash flow was $2.33 billion. The company returned $860 million to shareholders in the quarter through $440 million of buybacks and $420 million of dividends.
| Metric | Q3 FY26 | Q3 FY25 | YoY change |
|---|---|---|---|
| Revenue | $9,115M | $7,302M | +25% |
| GAAP gross margin | 50.3% | 48.8% | +1.5 pts |
| GAAP operating margin | 33.7% | 30.6% | +3.1 pts |
| GAAP net income | $2,538M | $1,779M | +43% |
| GAAP diluted EPS | $3.17 | $2.22 | +43% |
| Non-GAAP diluted EPS | $3.50 | $2.48 | +41% |
| Cash from operations | $3,040M | n/a | record |
| Capital returned | $860M | n/a | $440M BB + $420M div |
Guidance: the highest number Applied has ever put out
Management guided Q4 FY26 revenue to $10.25 billion at the midpoint, plus or minus $500 million, and non-GAAP diluted EPS to $4.02, plus or minus $0.20. At the midpoint the guide implies roughly 26% year-over-year revenue growth and would mark the first quarter above $10 billion in company history — equivalent to a ~$40 billion annual run rate.
CFO Brice Hill flagged continued strength in DRAM as well as leading-edge foundry-logic and advanced packaging (the technologies behind HBM and chiplet-based AI accelerators) as the main second-half drivers. That is a meaningful mix statement: DRAM is a notoriously cyclical business, and its share of Semiconductor Systems revenue moved from 22% in the year-ago quarter to 26% this quarter.
Segments: DRAM up, foundry-logic still the anchor
Semiconductor Systems — the deposition, etch, CMP and inspection tools Applied sells to fabs — generated $7.04 billion, up 26.5% year over year, with operating margin of 37.7%. Applied Global Services, which sells parts, service contracts and refurbishment for the installed base, produced $1.78 billion, up 21.7%. The “Other” category, which now houses Display, was $294 million.
| Segment | Q3 FY26 revenue | Q3 FY25 revenue | Non-GAAP op margin |
|---|---|---|---|
| Semiconductor Systems | $7,040M | $5,564M | 38.0% |
| Applied Global Services | $1,781M | $1,463M | 30.1% |
| Other (incl. Display) | $294M | $275M | n/m |
Inside Semiconductor Systems the customer mix moved: foundry-logic and other was 67% of segment revenue (down from 69%), DRAM was 26% (up from 22%), and flash memory was 7% (down from 9%). Translation: the AI capex cycle is broadening from leading-edge logic into memory, particularly HBM and DDR5 capacity for AI-server systems, while NAND remains the weakest sub-vertical.
The China chart Wall Street is going to circulate
The single most-discussed line in the release is geography. In Q3 FY26, China contributed $2.506 billion, or 28% of total revenue, versus $2.548 billion and 35% in Q3 FY25. Absolute China dollars barely budged; U.S., European and Korean dollars all surged. The result is a mix shift that quietly reduces Applied’s exposure to Washington’s evolving export-control regime and to a slowing mature-node buildout inside China.
Some of that shift is policy-driven. Applied has repeatedly disclosed that U.S. Bureau of Industry and Security (BIS) export controls have restricted shipments of advanced-node tools to certain Chinese customers. Some is customer-driven: mature-node capacity added in China during 2023–2025 is now in digestion, while leading-edge builds in Taiwan, Korea and the U.S. accelerate on the back of TSMC’s Arizona and Japan expansions and Samsung’s Taylor, Texas fab.
Why the stock fell despite a beat and raise
Three threads dominated the after-hours commentary. First, expectations. AMAT shares had already been a strong performer heading into the print, so a straight-line beat was largely embedded in the multiple. Second, mix quality: heavier DRAM within a record revenue number is welcome now but reminds investors what happens on the way down. Third, the China narrative — even though absolute dollars barely moved, the shape of the geographic pie meaningfully changed, and Wall Street models will need to reset their China assumption lower for FY27.
None of that changes the underlying operating story. Applied posted its 13th consecutive quarter of year-over-year gross-margin expansion. CEO Gary Dickerson framed FY27 as “another strong growth year,” and the company continued to invest — expanding its Singapore Tampines Campus with a US$500 million cleanroom build-out and adding Broadcom and UC Berkeley as EPIC Center partners. The company’s new products list this quarter reads like an HBM checklist: Centura Prime Epi for source/drain in DRAM, Opta Quad CMP for hybrid bonding, Nokota VMax 2 ECD for TSV fill, Producer Avila 2 PECVD for TSV isolation, and VeritySEM 7AP for CD metrology on warped stacks.
What to watch next
- Q4 print (mid-November 2026): Does DRAM share push above 30%, and does China stay near 28% or slip further?
- WFE calendar-2026 framing: Applied has raised its Semiconductor Systems revenue expectation for the calendar year; sell-side WFE models from Applied, Lam Research and KLA will pull toward the high end.
- Export-control revisions: Any expansion of BIS advanced-computing controls in late 2026 could accelerate the China-share erosion.
- HBM capacity announcements: Samsung, SK Hynix and Micron capex color drives Applied’s DRAM upside.
Sources
- Applied Materials Q3 FY2026 earnings release — SEC 8-K, Exhibit 99.1, August 13, 2026
- Applied Materials Investor Relations
- U.S. Bureau of Industry and Security — Advanced Computing & Semiconductor Manufacturing controls
Disclosure: This article is for informational purposes only and is not investment advice.