Is Applied Materials Still The Company You Bought

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Many investors bought Applied Materials (AMAT) for two reasons: the wide margins on its chip-making tools, and a steady flow of cash returned to shareholders through buybacks and dividends. On October 12, two months after reporting record quarterly revenue, the company unveiled a $5 billion research center for chip equipment. Management had said in August that the first research tool would move into the center the following week. Does a company spending on that scale still pay you back the way it used to?

Partly: Applied Materials Now Reinvests Far More Than Before

Applied Materials continues to sell chip-making machines through Semiconductor Systems and service work through Applied Global Services, but the company now redirects a much larger share of its revenue back into buildings and equipment. Over the last twelve months, capital spending reached about 9% of revenue, compared with a typical level of 2.8% from October 2011 to July 2025.

The latest quarter reflects the same shift. Capital spending in fiscal Q3 2026 alone reached $707 million, or nearly 8% of revenue for the period. While that remains far above the typical level, it is down from nearly 12% in fiscal Q4 2025.

Why Is Applied Materials Expanding So Fast?

Applied Materials is spending more because it is adding capacity on the strength of longer-term demand signals from its customers, management said on the August 13, 2026 call. Management added that the capital spending includes equipment for the new research center alongside other investments, and that the company's largest customers are now providing longer-term commitments and rolling forecasts.

The company opened a new manufacturing center in Singapore during fiscal Q3 2026, and management said that Applied Materials has nearly doubled its manufacturing space over the past several years. By 2028, it plans to have the capacity to double its quarterly output of systems from current levels.

This additional spending supports a business that is growing, not shrinking. Revenue in fiscal Q3 2026 climbed 24.8% from a year earlier. The operating margin widened as well, rising to 33.7% from 30.6% in the same quarter the previous year.

What Applied Materials' Expansion Means For Your Money

For now, the expansion leaves less spare cash for you. Over the last twelve months, free cash flow, the cash left after capital spending, slipped to $5.62 billion from $5.82 billion a year earlier. Net income rose by more than a third over the same stretch, while cash from operations rose only about 9%, so a much smaller share of the profit was left over as cash.

Buybacks also shrank far more sharply than free cash flow slipped. Applied Materials repurchased $2.03 billion of its stock over the last twelve months, down from $5.49 billion a year earlier. Management said on the August call that it still expects to hand 80% to 100% of free cash flow back to shareholders. Buybacks and dividends together accounted for about 63% of free cash flow over those twelve months, falling below that range.

The latest quarter offers news a holder can appreciate. Free cash flow in fiscal Q3 2026 reached $2.33 billion, up from $2.05 billion a year earlier.

You could previously assume that most of Applied Materials' profit would come back to you as buybacks and dividends, leaving little for buildings and equipment. While the expansion runs, that assumption no longer holds. On October 26, the company also agreed to raise its stake in Dutch chip-packaging equipment maker BE Semiconductor Industries to about 20% from 9%.

Management expects capital spending to fall as a share of sales in 2027. For the extra spending to be worth the wait, customers must keep filling the new capacity with orders - whether in data centers or in massive downstream bets like Tesla's autonomous driving software (see: Musk's Massive Marketing Miss Cost $10 Trillion). Capital spending against revenue is the measure to watch when Applied Materials next reports, expected in November 2026.

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