Is Applied Materials Still The Business You Bought

You may own Applied Materials (AMAT) as a chip equipment maker that aims to hand most of its spare cash back to shareholders. A $10,000 holding a year ago is now worth about $24,500. Your stake in this business is far bigger than it was. Is Applied Materials still the business you bought?

Partly: Applied Materials Now Spends Far More On Plants

Partly. Applied Materials still sells chip-making equipment. But the company now spends far more of its sales on its own plants. Capital spending, the money a company puts into buildings and equipment, reached 9.0% of revenue over the last twelve months. Across the 14 years before that, the typical level was 2.8%.

Several ratios in Applied's accounts moved together in fiscal Q3 2026. Capital spending as a share of revenue moved the most. Taken together, those ratios had not looked like this in 15 years of records. Applied now spends like a company building its own factories.

Why Is Applied Materials Building So Much?

Applied is building because its customers want more tools. Management said on the fiscal Q3 2026 call that customers found ways around limited clean room space. Those customers then sharply raised their demand for tool deliveries. Revenue in that quarter was a record $9.1 billion, up 25% from a year earlier.

Applied has nearly doubled its manufacturing space over the past several years. The company opened a new manufacturing center in Singapore during the quarter. Management said Applied can double its quarterly system output by 2028. Management called this a capacity plan, not a revenue forecast.

The business underneath is the same one, only bigger. Gross margin is the share of sales left after production costs. Applied's gross margin has risen from a year earlier for 13 quarters in a row. Management expects capital spending to stay higher than normal in 2027 but to fall as a share of revenue.

Less Of Applied Materials' Profit Turns Into Spare Cash

For your money, the extra spending means a smaller share of profit turns into spare cash for now. A third of the cash Applied's business brought in over the last twelve months went to capital spending. Free cash flow is the cash left after paying for plants and equipment. Only about 61 cents of each dollar of Applied's profit became free cash flow over that time.

Management plans to return 80% to 100% of free cash flow to shareholders. So when Applied spends more of its cash on plants, less of it is left for you. The dividend is not under strain, though.

In fiscal Q3 2026, Applied paid $420 million in dividends out of $2.3 billion of free cash flow.

A holder could once count on most of Applied's profit becoming spare cash, and today less of it does. If the next quarterly report shows spending falling as a share of sales, more profit can reach you as cash. If capital spending keeps rising faster than sales, a smaller share of Applied's profit will be left to hand back. The extra spending pays off only if Applied's customers keep filling the new capacity with orders.

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