Applied Materials (NASDAQ: AMAT) recently released its SEC filings for its fiscal year 2024, and the results are what we’ve come to expect from Applied: another year of solid performance and continued growth. That makes five consecutive years of growth, which is not the easiest thing to do given the volatility of the chip industry it serves. (Remember the supply-chain nightmares at the beginning of this decade, not to be outdone by the volatility in the memory market.)
The company’s Q4 performance was especially strong, with record revenue, record earnings, and plenty of exciting news about its semiconductor production equipment and especially its Applied Global Services unit. As I’ve previously stated on X, AI doesn’t happen without this company. Applied’s continued growth reflects how much chip manufacturers continue to rely on it for critical hardware, for AI chips and just about every other type of semiconductor.
Let’s get into the numbers.
Applied Materials’ Strong Financial Performance in 2024
It was another strong year from Applied, with growth in every major segment of the business. This culminated in net revenue of $27.2 billion, up 2% year-over-year, along with operating income of $7.9 billion (up 3% YoY) and diluted EPS of $8.61 (up 6% YoY). By far the largest component of revenue was the semiconductor systems business at $19.9 billion, up 1% YoY. The largest growth was seen in Applied Global Services, up 9% YoY to hit $6.2 billion in revenue. Rounding out the picture, the much smaller display segment was also up 3% YoY, to $0.9 billion.
How Applied Is Winning
The boom in AI chips benefits Applied. The industry continues to demand greater performance and greater efficiency from silicon, and Applied has the resources and expertise — not to mention the institutional heritage — to do the fundamental engineering and materials research necessary to advance the field. As president and CEO Gary Dickerson mentioned in the Q4 earnings call, advancements in the semiconductor industry “are increasingly enabled by innovations in materials science and materials engineering, where Applied has clear leadership.”
I’ve talked before about Applied’s ability to tackle the most arcane engineering problems that concern the chip industry. Although its work often escapes the headlines, this company produces some genuinely astounding technical developments. One notable recent fruit of its efforts, advanced gate-all-around nodes, was recently moved into high-volume production by leading logic companies. Production in that area has already generated about $2.5 billion in revenue, with expectations of around $5 billion in 2025, as Dickerson noted on the Q4 earnings call. He went further, stating that the transition from FinFET-based nodes to gate-all-around nodes “grows Applied’s available market from around $12 billion to approximately $14 billion for every 100,000 wafer starts per month of capacity.” If that weren’t enough, Applied anticipates capturing more than half of all the process equipment spending industry-wide for gate-all-around.
During 2024, Applied found growth in other areas as well. Integrated solutions are a growing part of semiconductor systems revenue, and are expected to become even larger in coming years. DRAM also saw massive gains, with revenues growing by more than 60% YoY; this is in line with a long-running trend, and Applied has grown its share of the DRAM market by ten points in as many years. Advanced packaging also saw large improvements, providing chip makers with important advances in performance, energy consumption, and cost for new chips.
It’s important to note that Applied’s display business did not have such remarkable results during the year. But I believe the company is well positioned to capitalize on any marketwide increase in demand for OLED displays, which I see as being likely over the next couple of years. Applied also saw some decline in revenue from China, which seemed to spook some investors. However, given ongoing tensions between the U.S. and China over semiconductors — and concerns about possible changes in trade policy by the incoming U.S. presidential administration — it’s not surprising to me that Applied has faced volatility among Chinese customers. It’s also worth noting that the downturn in Applied’s China performance did not stop the company from delivering a strong 2024 overall.
Record Performance for Applied Global Services
Notable in this year’s filings was a record year for AGS, rounded off by a record quarter in Q4. AGS is the part of the company that assists manufacturing customers with the upkeep and operation of their fabs, ensuring maximum uptime and performance. This is a critical service in a period when enterprise customers are demanding more AI-ready chips — by yesterday.
AGS is the fastest-growing segment of Applied in both relative and absolute terms, adding approximately $500 million in revenue YoY. The Q4 earnings report mentioned that AGS signed its first five-year service contracts during the year, raising the average length of AGS contracts to 2.9 years. To top it off, AGS maintained a contract renewal rate of over 90%, which tells me that it’s delivering on its promises for customers. With high renewal rates and growing contract tenures, I expect AGS to continue to provide great returns for Applied.
Applied Materials’ Pressures
Here’s a big question I’ve asked before in the context of chip manufacturers: When do enough companies start seeing a real return on investment from all the CapEx being dumped into generative AI? AI has been one driving factor in Applied’s business for the past few years. As enterprises demand more and better chips from manufacturers, those manufacturers in turn demand more and better manufacturing equipment and processes from Applied. While Applied does a very good job managing the inherent volatility faced by any chip equipment vendor, its fortunes are inevitably tied to the success of its manufacturing clients.
In the context of AI, this means that if real, widespread value cannot be realized from gen AI, Applied will take a hit alongside the manufacturers it serves. AI has been running so hot for the past couple of years that all kinds of AI vendors (not just in semiconductors) have been able to make money on it. But the pace of the past two years won’t last forever, and anything that slows down the AI train as a whole could potentially introduce additional uncertainty to the chip market — which can already be temperamental. As I said, Applied is well managed and tends to keep good hands on the tiller at all times to avoid the worst of this, but the risks inherent to the industry remain.
Applied Has Lots of Room to Run
As long as companies want gen AI and lots of it, Applied should keep doing very well for itself. And this trend is likely to go on for a while, because the industry keeps demanding higher quantities of better chips. In the words of Gary Dickerson, “Leading AI companies are talking about the need to drive a 10,000-times improvement in computing-performance-per-watt over the next 15 years.” That kind of four-orders-of-magnitude shift is not going to happen without Applied. Also, the market is trending toward a “more than shrinks” stage via lithography as well as technologies including GAA transistors and heterogeneous packaging — so the future looks bright for the company.
Barring a sudden meltdown in gen AI demand or some other unforeseen catastrophe, I expect that Applied will continue to grow steadily. I’ll be intrigued to see how it fares in displays (especially if OLEDs take off) and in the China market during the second Trump administration. Regardless, I don’t see anything on the horizon that’s likely to stop Applied from continuing its strong run.
