Applied Materials (AMAT) is back in focus after reporting record Q2 fiscal 2026 results, including its highest gross margin in more than two decades, as accelerating AI infrastructure spending lifts wafer fabrication equipment demand.

Despite a 30.5% share price gain over the past 90 days and an 88.8% year to date share price return, Applied Materials has recently cooled, with the 30 day share price return down 22% and the 1 year total shareholder return at 184.1%. This suggests strong long term momentum after a sharp pullback.

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For Applied Materials, the recent surge and sharp pullback sit at the crossroads of record business results and a powerful AI story that has fired up sentiment. Which side of that split does the current valuation lean toward?

Most Popular Narrative: 19.1% Undervalued

Applied Materials is trading at $507.67 compared with a widely followed fair value estimate of $627.66. That gap reflects a detailed long term AI and wafer fab equipment thesis.

Structural growth in AI and high-performance computing is reshaping semiconductor demand, driving heavy investments in advanced chip architectures such as gate-all-around (GAA) transistors, high-bandwidth memory (HBM), and advanced packaging. Applied is set to benefit from these device inflections due to its leadership in materials engineering and strong customer adoption of new process technologies, which are expected to deliver outsized revenue and market share gains as these nodes ramp from 2026 onward.

Want to understand why this fair value sits well above the current share price? The narrative leans on rapid earnings expansion, rising margins, and a richer future earnings multiple. Curious how those moving parts fit together and what assumptions drive the long range growth arc for Applied Materials? The full narrative lays out the playbook behind that $627.66 figure.

Result: Fair Value of $627.66 (UNDERVALUED)

However, investors still need to weigh the risk that export restrictions on China, or weaker capital spending from a few key customers, could quickly challenge this Applied Materials narrative.

Another View on Applied Materials Valuation

There is a very different read on Applied Materials when switching from the narrative based fair value to Simply Wall St's DCF model. On that framework, the stock price of $507.67 sits well above an estimated future cash flow value of $249.05, which screens as overvalued on cash flows.

If earnings based fair value suggests upside while the SWS DCF model points to downside, which set of assumptions feels closer to how you think Applied Materials will actually convert growth into cash over time?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Applied Materials for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 55 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment clearly split on Applied Materials, this is a moment to move fast, check the underlying data, and form your own view using the 3 key rewards and 2 important warning signs.

Looking for more ideas beyond Applied Materials?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.