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Applied Materials outlines 40% advanced DRAM revenue growth in 2025 amid strong AI demand

Insights from the Earnings Call: Applied Materials (AMAT) Second Quarter of 2025

Management View

• Gary Dickerson, who serves as both the President and CEO, stated that Applied Materials achieved impressive overall performance, marking a new high for earnings per share. He highlighted the firm’s adaptability in a rapidly changing economic landscape and pointed out that clients are concentrating their efforts on being the first to introduce groundbreaking innovations into the market.
• Dickerson mentioned that Applied is strategically placed within sectors including artificial intelligence, foundry-logic, advanced DRAM, packaging, and power devices. He emphasized that “by 2025, we anticipate our earnings from advanced DRAM clients increasing over 40%, driven by their increased spending on DDR-5 technology and high-bandwidth memory.”
• Dickerson highlighted significant market acceptance of the new offerings, stating, “Since introducing our Sym3 Magnum etching tool for sophisticated patterning in February 2024, it has accumulated over $1.2 billion in sales.”
• The CEO outlined the strategic advancements involving the EPIC R&D facility, mentioning, “Our new leading R&D site, known as the EPIC Center located in Silicon Valley, is advancing according to plan, and we anticipate initiating operations at this center in Spring 2026.”
• Brice Hill, the Chief Financial Officer, commented, “We achieved impressive financial performance for the second quarter of our fiscal year, showcasing significant year-over-year revenue growth, an expanded gross margin, and all-time high earnings per share.” He credited this success to substantial investments in advanced foundry logic technologies and mentioned “around $2 billion allocated towards dividends and share buybacks.”

Outlook

• Brice Hill forecasted for the third quarter’s total revenue to be around $7.2 billion, with a margin of error of ±$500 million, which equates to a YoY growth rate of approximately 6% at the mid-point. Additionally, he projected non-GAAP earnings per share (EPS) to land at $2.35, give or take $0.20, marking an 11% rise compared to last year’s figures at the mid-point.
• The management anticipates Semiconductor Systems revenues to be around $5.4 billion, AGS earnings to reach roughly $1.55 billion, and Display segment income to amount to about $250 million for this quarter.
• Hill stated, “A steady and robust DRAM market along with an increase in NAND sales, spurred by upgrades, is what we anticipate.”
• The gross margin forecast for Q3 is around 48.3%, with non-GAAP operating expenses estimated at roughly $1.3 billion.

Financial Results

• Applied Materials announced a total net revenue of roughly $7.1 billion for the second quarter, marking a 7% increase compared to the previous year, with each segment showing expansion.
• Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year, marking the company’s highest quarterly gross margin since fiscal 2000.
• The non-GAAP earnings per share hit an all-time high of $2.39, marking a 14% increase from the previous year.
• The Semiconductor Systems division reported revenues of $5.26 billion, the AGS segment had earnings of $1.57 billion, and the Display unit contributed revenues totaling $259 million.
• Free cash flow for Q2 was approximately $1.1 billion. The company ended the quarter with cash and cash equivalents of $6.2 billion and debt of $6.3 billion.
• Hill noted, “Our Board of Directors approved a 15% increase to our dividend per share” and an additional $10 billion share repurchase authorization, resulting in $15.9 billion available for future repurchases.

Q&A

• Stacy Rasgon, Bernstein Research, questioned the sequential performance of the AGS segment in light of China restrictions. Hill clarified AGS core business had a record in Q2 and is expected to “grow at low double digits during the year,” despite trade headwinds and weaker 200-millimeter equipment.
• Vivek Arya from Bank of America inquired about ICAPS exposure and the current trends in China. Hill responded that the ICAPS segment is anticipated to show “mid-to-high single-digit growth” over the coming period. Regarding China, he mentioned that semiconductors are projected to make up approximately “twenty-five percent” of the overall company revenue, highlighting their robust position at the 28-nanometer node level.
• CJ Muse from Cantor Fitzgerald questioned the sustainability of the gross margins. Hill affirmed that the firm is “advancing well with value-based pricing and cost control” and anticipates “in the low-40s, likely close to 48.2% to 48.3%, as the appropriate figure.”
• Melissa Weathers from Deutsche Bank asked about the current state of DRAM. Hill mentioned that HBM is experiencing growth at a rate of 40%, adding that the DRAM sector remains very robust, driven largely by the high-demand for artificial intelligence technologies requiring cutting-edge solutions.
• Timm Schulze-Melander from Redburn Atlantic questioned the current level of risk tolerance within advanced packaging. Dickerson responded, “Our insight into the future direction of the sector is quite extensive,” thanks to strong ties with customers and an integrated product line.

Sentiment Analysis

• Experts expressed worries regarding the effects of China’s trade limitations, the expansion pace of the AGS division, competition within the ICAPS sector, and the consistency of profit margins. The inquiries tended to be thorough and somewhat wary, particularly concerning the progression from one period to another and various global political hazards.
• The management kept an assured demeanor during both their scripted statements and question-and-answer session, stressing resilience and expansion within key sectors. Hill employed expressions like “strong confidence” and stated “we are in a solid position,” tackling issues head-on and offering thorough clarifications.
• In comparison to the prior quarter, management expressed confidence and persisted in highlighting advanced technology and expansion, whereas analysts stayed wary because of persistent trade and market instabilities.

Quarter-over-Quarter Comparison

• The revenue forecast midpoint for Q3 has been raised to $7.2 billion from $7.1 billion in the previous quarter, whereas the EPS midpoint was revised upward to $2.35 from $2.30.
• The projected gross margin for Q3 (48.3%) aligns with the previous forecast for Q2, whereas the actual gross margin for Q2 (49.2%) exceeded that of the preceding quarter at 48.9%.
• In the second quarter, the dividend per share saw a 15% increase, along with an announcement of a new $10 billion program for share buybacks.
• Management reiterated strong growth in DRAM and foundry-logic, with continued headwinds in China and mature logic (ICAPS), reflecting similar themes from the prior quarter.
• Analysts in both quarters focused on China, AGS, gross margin dynamics, and competitive landscape, but the current quarter featured more repeated probing on sequential growth and China restrictions.
• Leadership maintained their faith in the strategies for enhancing market position and improving profit margins, as seen in the previous period. They also delved deeper into the discussion of how well new products are performing along with developments in sophisticated packaging solutions.

Risks and Concerns

• Trade limitations and duties affecting revenues from Chinese equipment and services continued to be a significant hurdle. Hill mentioned “reduced business with China because of these trade limitations” and underscored the associated challenges for AGS.
• Fluctuations in 200-millimeter machinery along with usage levels led to poorer performance within that sector.
• Management attributed the expansion of the revenue guidance range to a “significantly fluctuating macroeconomic landscape” along with geopolitical uncertainties.
• Experts probed further into the risks posed by emerging Chinese rivals and the loss of market share, along with questioning how sustainable profit margins will be considering the effects of tariffs and disruptions in the supply chain.

Final Takeaway

Applied Materials’ executives emphasized their outstanding financial performance during the second quarter of 2025 and restated their belief in sustained long-term expansion, fueled by their dominance in cutting-edge logic circuits, DRAM chips, and semiconductors designed for artificial intelligence applications. They pointed out an impressive lineup of upcoming products along with strong partnerships with key clients, particularly predicting over 40 percent increase in revenues from leading-edge DRAM consumers this year. Regardless of current trading limitations and short-term difficulties faced within the Chinese market as well as established logic circuit sectors, Applied Materials anticipates achieving moderate increases in primary service earnings. Additionally, they foresee consistent levels of profit margins, all while enhancing shareholder rewards via higher dividend payouts and stock buybacks.

Review the complete earnings call transcript.