This achievement shows how memory-focused companies are taking advantage of a steep shortage of high-bandwidth memory (HBM) and DRAM, essential for AI training and inference. As data centers expand rapidly, these shortages create profitable opportunities for investors, positioning memory stocks as the next frontier in the AI boom alongside logic chips.
Strong results highlight AI’s momentum
Applied Materials delivered impressive fourth-quarter 2026 results, with revenues of $7.01 billion, slightly ahead of expectations, despite a 2% year-over-year decline. Non-GAAP earnings per share came in at $2.38, beating estimates of $2.21 and flat compared to the prior year. The company’s gross margin grew to 49.1% on a non-GAAP basis, up 20 basis points year-over-year, due to efficient operations and a favorable product mix focused on high-end AI-related equipment.
Key segments performed well, especially in semiconductor systems, which benefited from demand for DRAM and advanced packaging tools. CEO Gary Dickerson highlighted during the earnings call that DRAM is expected to be the fastest growing segment by 2026, driven by AI infrastructure needs.
The company’s guidance was even more compelling, predicting second-quarter revenue of about $7.65 billion, well above the $7.01 billion consensus, with non-GAAP earnings per share of about $2.64. Looking further ahead, Applied expects more than 20% growth in its semiconductor equipment business in the second half of 2026 and into 2027, fueled by AI expansions and memory capacity expansion.
The memory shortage and the industry winners
The global memory chip shortage, exacerbated by explosive demand for AI, is a key driver of Applied’s prospects. Data centers are expected to consume up to 70% of memory chips produced in 2026, leading to supply shortages that could last until 2027. High-bandwidth memory like HBM, crucial for AI accelerators, is in particularly short supply, with prices rising 50% to 55% in recent quarters as manufacturers prioritize AI over consumer electronics. This pivot has limited the availability of commodity DRAM and NAND, driving up costs for smartphones, PCs and other devices.
Companies like it Micron (MU), SamsungAnd SK Hynix capitalize enormously. These three dominate over 90% of the memory market and have sold out their HBM capacity by 2026, locking in premium prices. SK Hynix has signed deals with Nvidia (NVDA) at 50% higher prices for the next generation HBM4, while Samsung expects a 422% increase in profits from its memory division. Micron reported record first-quarter 2026 revenue of $13.64 billion, with gross margins of 56%, as it shifts production to AI-focused products.
Applied Materials fits this gap as a key supplier of equipment for advanced memory manufacturing, including tools for 3D chiplet stacking and DRAM production, helping these companies ramp up capacity amid the crisis.
In short
Despite shares of Applied Materials rising 28% this year and 82% last year, the shares are still trading at reasonable valuations, with a forward price-to-earnings ratio of around 39x against the backdrop of expected earnings growth. The memory shortage and AI tailwinds indicate more upside potential as the company’s exposure to DRAM and HBM positions it for continued demand.
Investors eyeing the next AI wave should consider AMAT and peers like MU, with room to run as shortages boost profitability.
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