Applied Materials has become one of Wall Street’s clearest ways to play the AI infrastructure buildout without buying the chip designers that dominate the headlines. The company sells the equipment needed to manufacture advanced semiconductors, and Morgan Stanley now sees a much stronger 2026 setup than it expected just a few months ago.
In a Morgan Stanley note shared with TheStreet, analysts led by Shane Brett raised their price target on Applied Materials to $502 and reiterated an overweight rating, while keeping the stock as a Top Pick in semiconductor capital equipment. The call came after Applied delivered what Morgan Stanley described as another strong “beat and raise,” with upside across several parts of the business.
The new target compares with Applied’s May 14 closing price of $440.56, according to the note, implying roughly 14% upside from that level. Morgan Stanley also said the stock narrative has shifted from whether Applied can outperform 2026 wafer fab equipment growth to how much it can outperform.
Morgan Stanley raises Applied Materials target after it delivers record results
The company reported fiscal second-quarter revenue of $7.91 billion, up 11% from a year earlier, while GAAP earnings per share rose 33% to a record $3.51. Non-GAAP EPS increased 20% to a record $2.86, while non-GAAP gross margin reached 50.0%.
Applied also guided fiscal third-quarter revenue to $8.95 billion, plus or minus $500 million, and non-GAAP diluted EPS to $3.36, plus or minus 20 cents. That guidance became a major part of Morgan Stanley’s more bullish view, since the bank had previously expected April-quarter revenue above $8.4 billion, and Applied’s midpoint came in higher.
Chief Executive Gary Dickerson said Applied now expects its semiconductor equipment business to grow more than 30% in calendar 2026. He pointed to the “rapid global build-out of AI computing infrastructure” and the company’s positions in leading-edge logic, DRAM, and advanced packaging as support for sustained revenue and profit growth.
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AI demand is moving deeper into the supply chain
Morgan Stanley’s call rests on the idea that Applied is benefiting from the parts of AI spending that sit below the surface.
The bank raised its full-year systems growth forecast for Applied from 28.6% to 34.2%, while modeling the company to outgrow 2026 wafer fab equipment growth by more than 10 percentage points.
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That would mark Applied’s strongest relative performance since 2020, according to Morgan Stanley, when the company outgrew wafer fab equipment growth by 14 percentage points. The bank sees Applied benefiting from incremental 3nm wafer additions and what it called unprecedented DRAM greenfield activity, while also giving the company credit for meeting expedited customer demand.
Applied’s recent business highlights also support that theme. The company confirmed EPIC Center engagements with TSMC, SK hynix, Micron, Advantest, Arizona State University, RPI, and Stanford, with projects tied to next-generation AI chips, DRAM, high-bandwidth memory, NAND, advanced packaging, and semiconductor process innovation.
The 2027 debate is still open on Applied Materials
Morgan Stanley’s bullish 2026 view does not erase the questions investors will ask next. In the note, the bank said leading-edge foundry logic, DRAM, and advanced packaging are expected to account for more than 80% of year-over-year growth in total wafer fab equipment spending in 2026 and 2027, which should keep Applied positioned in the right markets.
The concern is how much of that growth Applied can capture once the market looks beyond this year. Morgan Stanley highlighted several areas it wants to watch, including Applied’s share at 1.4nm as initial wafer additions begin, its share beyond TSMC as leading-edge spending broadens, and its position at future 1C and 1D DRAM nodes.
The bank also distinguished two parts of Applied’s portfolio. It credited the company for strengthening conductor etch, noting 300 basis points of market-share gains in 2025, but said process control has remained a drag and that it is not yet ready to give Applied full credit for management’s optimism in that area.
For now, Morgan Stanley’s base case is that 2026 belongs to Applied Materials. The bank raised its calendar 2026 revenue and EPS forecast, lifted its 2027 forecast as well, and said the company’s execution so far is pushing analysts to look for more reasons to be positive rather than negative.
Related: Citi massively revamps Applied Materials stock price target