Applied Materials (AMAT) Stock Price Drops Despite Record Q4 Earnings

Applied Materials just posted record Q4 2026 numbers, yet the stock dropped 2.8% today to US$370.25. That gap between emotion and evidence is the story. Revenue for the quarter reached US$10.4b and non GAAP earnings per share came in at US$4.16, both aligned with a company already priced for high expectations.

Investors came into the release after a rough 30 day stretch, with the share price already down 17%. Today looks less like a fresh verdict on the business and more like a market that is wrestling with how much of this earnings strength was already in the price.

Impressed by Applied Materials delivering record Q4 figures but uneasy about paying up for a stock that already bakes in big expectations? Compare that reaction with a broader set of solid operators using our list of solid balance sheet and fundamentals stocks (24 results).

Q4 2026 Earnings Summary

• Revenue (Q4 2026 vs. Q4 2025): US$10.4b vs. US$6.8b (strong year-on-year increase in quarterly sales)
• Net Income (Excl. Extra Items, Q4 2026 vs. Q4 2025): US$2,718m vs. US$1,897m (solid uplift in quarterly profit)
• Basic EPS (Q4 2026 vs. Q4 2025): US$3.43 vs. US$2.39 (meaningful improvement in earnings per share for the quarter)
• Trailing Net Profit Margin (Last 12 Months vs. Prior Year): 29.3% vs. 24.7% (reported profitability on sales widened over the past year)

Management is calling for 30%+ WFE growth in 2027. Ask Charlie what makes Applied Materials confident about 2027 demand.

Applied Materials’ AI Ambition Meets Hard Numbers

Applied Materials is often pitched as an AI equipment winner that must shift its mix toward richer products and services. The analyst consensus Narrative on Simply Wall St frames it clearly.

"The main thing that has to go right is that Applied Materials continues to translate AI related demand, EPIC partnerships and expanded manufacturing capacity into growth in higher value segments like advanced packaging, process diagnostics and services while managing investment and ramp costs."

Record Q4 revenue of US$10.4b, Semiconductor Systems at US$8.0b and AGS at US$1.9b, plus a 50.6% gross margin and 35.3% operating margin, indicate that higher value tools and services are scaling while cost control holds up.

Cash Strain And Margin Fears Under The Microscope

Bears worry that aggressive programs will eat into cash and blunt profitability even if sales stay healthy.

"Higher investment in capacity and programs like the EPIC Center alongside lower free cash flow, as already reflected in recent quarters, could continue to weigh on cash generation and limit the ability of Applied Materials to convert revenue and earnings into discretionary cash returns for shareholders."

Applied Materials generated US$8.9b of operating cash flow and US$6.2b of free cash flow in fiscal 2026 while funding US$2.7b of capex and returning US$4.7b to shareholders, with gross margin at 50.1%. That mix suggests investment is heavy but still covered by cash generation and current profitability.

Not everyone reads the same price the same way. → See the higher figure this Narrative lands on, and how it gets there.

Hunt For Mispriced Earnings Power

Applied Materials shows how solid earnings can coincide with a softer share price. The real opportunity is identifying stocks that appear undervalued before the market adjusts their pricing.

• Company 1 - 47% below our estimate - turns large-scale AI data center spending into tools that enhance how advertisers reach and support customers.
• Company 2 - 42% below our estimate - grows a payment infrastructure that helps major online platforms coordinate complex local pay-ins and payouts.
• Company 3 - 44% below our estimate - builds interconnected LED display systems that transform static billboards and scoreboards into software-managed screens with ongoing service revenue.

That is three of the list. See all 32 potentially undervalued companies →

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