The adjusted 81/100 score rewards high margins, strong returns on capital, cash generation and a resilient balance sheet. More moderate five-year growth and dividends plus buybacks exceeding FY2025 free cash limit the score.
What does Applied Materials do?
The company supplies production systems used by chip fabs for deposition, removal, measurement and packaging. It also sells services and parts for installed equipment. As AI chips become more complex, the materials-engineering steps required for each chip can increase.
What do the 15 measures say?
Growth 54/100: Five-year annual revenue growth was 5.3% and net-income growth 4.4%. Revenue rose in every reviewed year, but the pace is more moderate than at high-growth companies.
Profitability 96/100: A 48.7% gross margin, 29.2% operating margin and approximate 33.4% return on capital indicate strong product economics. Chip equipment is cyclical, so these levels are not guaranteed during weaker investment periods.
Cash flow 81/100: Approximately $5.7 billion of free cash, a 20.1% margin and conversion equal to 81.4% of net income are strong, though not perfect.
Balance sheet 96/100: A 2.61 current ratio, net-cash position and 34.8-times interest coverage provide a strong buffer. Receivables and inventory growth broadly track sales.
Shareholder policy 79/100: Share count declined by an average 2.9% a year, stock compensation was 2.4% of revenue and the approximate SEC-based earnings multiple 17.3 times. But dividends and repurchases reached 110.2% of free cash; if sustained, that could reduce cash reserves.
Critical combinations
- AI-chip complexity + high margin
- Installed base + service revenue
- Net cash + high capital return
- Chip cycle + customer capex cuts
- China restrictions + revenue concentration
- High distributions + free-cash limit
Q3 FY2026 current context
The company reported record revenue of $9.12 billion, up 25% year on year. GAAP gross margin was 50.3%, operating margin 33.7% and operating cash $3.04 billion. Semiconductor Systems revenue rose 27% and Global Services revenue 22%.
The company says AI demand supports investment in leading-edge logic, DRAM, high-bandwidth memory and advanced packaging. This strong quarter is not added to the FY2025 score; order cycles and export restrictions still need long-term monitoring.
Applied Materials combines high-quality profitability and a strong balance sheet with AI-driven equipment demand. The long-term test is whether demand persists through the chip cycle and geopolitical restrictions. This is not investment advice.
Where the figures come from
- Applied Materials FY2025 Form 10-K, SEC — fiscal year ended 26 October 2025; primary score source.
- Applied Materials Q3 FY2026 Form 10-Q, SEC — interim period ended 26 July 2026.
- Applied Materials Q3 FY2026 results — official current context.
- Free cash is operating cash less capital expenditure. Approximate valuation is not a live-price measure. Operating margin, return on capital, liquidity, interest coverage and share-count scores were capped at their assigned maximums.