Applied Materials is a leading semiconductor equipment and services provider with a history of high margins and cash generation, operating as a capital‑light, cash‑generative industrial growth business.
The company's operating and profitability profile is a clear strength: trailing gross margin sits near 48.7% and trailing net profit margin is about 27.8%, while operating margin runs roughly 25.8%, reflecting strong pricing and operational leverage. Profitability has translated into shareholder returns, with trailing twelve‑month return on equity around 36.1% and a five‑year diluted EPS compound annual growth rate of roughly 15.24%. Cash generation is robust — trailing twelve‑month operating cash flow reached $8.72B versus TTM net income of $7.84B (a cash‑over‑earnings gap of about $0.88B), and free cash flow margin is approximately 20.1%.
There are, however, areas of caution. Top‑line per‑share growth has slowed: one‑year revenue‑per‑share growth is down to 2.1% and revenue per share is roughly $35.10, reflecting a normalization from the higher growth seen in 2021–2022. EPS also showed volatility through 2024–2025 with four consecutive negative year‑over‑year quarterly readings of -11.4%, -7.5%, -8.3% and -2.5% before a rebound to +23.6% in the most recent quarter. Market pricing has also risen materially; the trailing P/E moved to about 32.8x in the most recent quarter, while quarterly revenue has shown short‑term variability (peaking at $7.30B, dipping to $6.80B, and at $7.01B in the latest quarter). Financing and investing cash outflows remain sizable on a trailing basis (financing cash flow TTM roughly –$5.12B, investing cash flow TTM about –$2.67B).
See Revenue & Net Income, EPS Diluted & Revenue per Share, Revenue & EPS Growth, Profit Margin Trends, Earnings Quality Analysis, Return on Equity (ROE), Strategic Capital Allocation, and Price-to-Earnings (PE) Ratio Trend.
The foundation of business quality and long-term value creation
APPLIED MATERIALS INC /DE's revenue has risen materially over the multi-year span shown, climbing from under $4.0B in early 2020 to a roughly stable range around $6.5–7.3B since 2022. Revenue peaked at $7.30B in the quarter ending 2025-07, dipped to $6.80B in 2025-10, and recovered to $7.01B in the most recent quarter, indicating quarter-to-quarter variability within a higher, post-2020 revenue band.
Net income displays greater volatility but a clear recovery from sub-$1.0B levels in 2020 to multi-billion-dollar quarterly profits thereafter. Net income reached an intra-series high of $2.14B in the quarter ending 2025-04, eased to $1.90B in 2025-10, and rose to $2.03B in the latest quarter. The most recent quarterly revenue was $7.01B and net income was $2.03B.
Why Growth Matters
Consistent revenue and earnings growth are the lifeblood of successful long-term investments. Companies that can grow their top line (revenue) and bottom line (net income) over many years demonstrate they have products or services customers value and are willing to pay for repeatedly.
Revenue Growth shows whether the company is expanding its market reach, gaining market share, or successfully launching new products.Net Income Growth demonstrates the company can convert that revenue into actual profits while managing costs effectively.
Look for steady, sustainable growth rather than erratic spikes. The best businesses compound earnings year after year, creating tremendous value for shareholders over time. Companies that can grow earnings faster than revenue are improving their profitability—a sign of operational excellence and competitive strength.
Year-over-year growth rates for revenue and earnings per share
Reading the Growth Rate Chart
This chart converts the absolute per-share figures into year-over-year percentage changes, making it easy to see whether growth is accelerating, decelerating, or reverting to trend — regardless of the company's absolute size.
Revenue per Share Growth (1-year, split-adjusted) measures how quickly the top line is expanding on a per-share basis. Sustained positive growth signals that the company continues to win customers and grow its addressable market.EPS Diluted Growth (1-year, split-adjusted) measures how quickly earnings are compounding for each shareholder. When EPS growth consistently outpaces revenue growth, operating leverage and margin expansion are at work.
Look for consistency, not just magnitude. A company that reliably grows EPS 10–15% per year is far more valuable than one that alternates between 50% spikes and deep contractions. Negative EPS growth during a period of positive revenue growth is a red flag — costs are rising faster than sales. Quarters where both lines converge near zero or go negative deserve close scrutiny.
How revenue converts to net income for the most recent annual period
Over the period Jan 2025 to Jan 2026, Applied Materials Inc De converts approximately 49¢ of every revenue dollar into gross profit (gross margin: 48.7%).After accounting for operating expenses and taxes and expenses, the company retains 27.8% as net profit margin, resulting in $7.84B in net earnings.
Period Information
Report Type: Annual (10-K)
Period: Jan 2025 to Jan 2026
Analyzing long-term margin stability and competitive positioning
APPLIED MATERIALS INC /DE's long-term profit margin profile shows a steady upward trend in gross margin and a recovery in net profit margin. Gross margin has risen from the low-to-mid 40s in 2018–2020 to the high 40s by 2026, while net profit margin moved from the high‑teens around 2019–2020 into the mid-to-high 20s in subsequent years. A notable inflection occurred around 2019–2021 when net margins were in the high teens and then trended upward to the mid‑20s and above thereafter.
In the most recent quarters gross margin has been stable in the 47–49% range, with sequential values of 47.7% (2025-01-26) through 48.7% (2026-01-25). Net profit margin showed some quarter-to-quarter variability in 2024–2025 but increased to 27.8% in the latest reported quarter. The most recent gross margin was 48.7% and the most recent net profit margin was 27.8%.
Understanding Profit Margins
Between Jan 2025 and Jan 2026, Applied Materials Inc De converts every dollar of revenue through the following stages:
Sustainable competitive advantages reveal themselves through consistently superior profit margins over extended periods. Companies with durable economic moats maintain pricing power and operational efficiency that competitors struggle to match.
A sign of durable competitive advantage is earning sustained higher margins than competitors.Look for margins that remain stable or improve over time, especially during economic downturns. Declining margins may signal increasing competition, pricing pressure, or deteriorating business fundamentals.
Comparing reported earnings to actual cash generation
Over the most recent year APPLIED MATERIALS INC /DE shows operating cash flow (TTM) rising and consistently exceeding net income (TTM). From 2025-01-26 to 2026-01-25, operating cash flow moved from $7.28B to $8.72B while net income increased from $6.34B to $7.84B, leaving a current cash-over-earnings gap of about $0.88B. The last several quarters display a steady upward trend in both metrics, with operating cash flow generally tracking above net income.
A notable inflection occurred around the 2023-01-29 period when trailing twelve-month net income ($6.45B) exceeded operating cash flow ($5.01B); since then operating cash flow recovered and has outpaced net income through 2024–2026. On a longer view, both metrics have increased from the mid-2020s troughs into the current multi-billion-dollar cash generation levels. The most recent trailing twelve-month operating cash flow was $8.72B and the most recent trailing twelve-month net income was $7.84B.
The Earnings vs. Cash Flow Gap
Reported earnings (Net Income) doesn't always reflect actual cash generation. Companies use accrual accounting, which recognizes revenue when earned and expenses when incurred—not when cash actually changes hands. This creates timing differences and opportunities for accounting discretion that can mask underlying business health.
Net Income (the "earnings" number) can be influenced by non-cash items like depreciation, stock-based compensation, and changes in accounting estimates.Operating Cash Flow, however, shows the actual cash the business generates from its core operations—a harder number to manipulate.
Trailing Twelve Months
What to Look For
Key Insight: Companies with durable competitive advantages typically show operating cash flow that meets or exceeds net income over time, demonstrating they convert accounting profits into actual cash that can be returned to shareholders or reinvested in the business.
Measuring management's efficiency at generating profits from shareholder capital
APPLIED MATERIALS INC /DE's trailing twelve-month Return on Equity has been steady in the mid-30% range over the last year, with quarterly readings of 34.1% (2025-01-26), 35.6% (2025-04-27), 35.0% (2025-07-27), 34.3% (2025-10-26) and a rise to 36.1% in the most recent quarter (2026-01-25). This sequence shows modest quarter-to-quarter variation but overall stability around the mid-30s in the most recent periods.
Over a longer horizon, ROE climbed from single-digit and negative levels in 2012–2013 into the teens and twenties through 2014–2016, then rose sharply to a peak in 2021–2022 (highest reported 58.3% on 2022-05-01) before gradually moving down into the mid-30% range by 2024–2026. The most recent reported Return on Equity (ROE) for APPLIED MATERIALS INC /DE is 36.1%.
The Gold Standard of Profitability
Return on Equity (ROE) is a powerful measure of how effectively a company's management is using the money shareholders have invested. Calculated by dividing Net Income by Shareholders' Equity, it reveals how much profit is generated for every dollar of equity capital.
A consistently high ROE (typically above 15-20%) is often the signature of a "quality" business with a durable competitive advantage. It indicates that the company can generate high returns on its own capital, which it can then reinvest at these high rates to compound value over time.
What to Look For:
How the company generates and deploys its cash
APPLIED MATERIALS INC /DE's operating cash flow on a trailing twelve‑month basis has trended upward in the most recent quarters, rising from $7.28B at the 2025-01-26 period to $8.72B at the 2026-01-25 period. After a dip through early 2025, operating cash flow recovered steadily across 2025, showing the strongest recent increase between 2025-10-26 ($7.96B) and 2026-01-25 ($8.72B).
Investing cash flow has been consistently negative, widening to as much as -$3.71B on 2025-07-27 before moderating to -$2.67B in the latest period. Financing cash flow has also been negative across the timeline, with larger outflows in 2021–2022 (peaking around -$7B) and renewed larger outflows mid‑2025 (down to -$6.92B on 2025-07-27) before moderating to -$5.12B most recently.
Most recent trailing twelve‑month values:
Understanding Company Strategy
Capital allocation refers to how management decides to spend and invest the company's cash. Analyzing the three primary categories of cash flow reveals a company's true operational strategy:
What to look for: Is the company bootstrapping (funding growth solely from operating cash)? Are they borrowing to fund aggressive expansion or dividends? Or are they capital raising by issuing new shares, potentially diluting your ownership? A healthy, mature company typically generates strong operating cash, moderately invests in growth, and returns the surplus to shareholders through financing activities.
Trailing Twelve Months
Net assets attributable to each share — the accounting floor of intrinsic value
Why Book Value per Share Matters
Book value per share is the net worth of the company — total assets minus total liabilities — divided by shares outstanding (split-adjusted). It represents the theoretical liquidation value per share if every asset were sold and every liability repaid at balance-sheet carrying values. It is the accounting foundation upon which much of equity valuation is built.
A steadily rising book value per share is one of the most reliable signals of compounding wealth creation. It means the company is retaining earnings and building net worth faster than it is returning capital or eroding it. Warren Buffett famously tracked Berkshire Hathaway's book value per share for decades as his primary measure of intrinsic value growth.
Context is essential. Asset-heavy businesses (banks, manufacturers, utilities) should be judged by book value more directly than asset-light businesses (software, consumer brands), where intangible assets like intellectual property and customer loyalty may far exceed their balance-sheet carrying values. A company trading at a large premium to book value is not necessarily overvalued — it may simply possess competitive advantages that accounting rules do not capture. Conversely, a declining book value per share — especially over multiple years — is a serious warning sign of capital destruction.
How much of the company is financed by debt versus shareholders' equity
Reading the Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio compares total financial debt to shareholders' equity. A ratio of 1.0 means the company has borrowed one dollar for every dollar of equity; a ratio of 2.0 means it has borrowed twice as much as it owns. Financial leverage amplifies both returns and risk: in good times, debt turbocharges equity returns; in bad times, it accelerates losses and can threaten solvency.
Trends matter more than a single number. A rising D/E ratio can mean the company is taking on debt to fund growth — potentially value-creating if returns exceed the cost of capital. But it can also mean equity is being eroded through losses or that the business is borrowing simply to sustain operations. A falling D/E ratio generally reflects strengthening financial health: earnings are being retained, debt maturities are being paid down, or both.
Industry norms vary enormously. Capital-intensive sectors (utilities, real estate, financials) routinely carry high D/E ratios that would be alarming in, say, a technology company. Always compare against sector peers. As a rough rule of thumb, a D/E above 2× in a cyclical business warrants careful scrutiny of interest coverage and refinancing risk.
Short-term liquidity — can the company cover its near-term obligations?
Liquidity: Can the Business Pay Its Bills?
The current ratio is calculated as current assets divided by current liabilities. A ratio of 1.5 means the company has $1.50 of short-term assets — cash, receivables, inventory — for every $1.00 of obligations due within the next twelve months. It is the most direct measure of near-term financial resilience: can the business meet its obligations without needing to raise new capital or sell long-term assets at a discount?
A ratio above 1.0 is generally healthy, meaning current assets exceed current liabilities. A ratio consistently above 2.0 may indicate the company is holding excess cash or inventory that could be deployed more productively. A ratio below 1.0 is a warning sign — the company is relying on future cash generation or external financing to cover its near-term obligations, which is manageable in normal conditions but dangerous during a downturn.
Trends and context matter.A declining current ratio isn't always alarming — highly efficient businesses (e.g., large retailers with reliable daily cash flows) often run leaner balance sheets intentionally. Conversely, a rapidly rising current ratio can signal slowing sales causing inventory to build, or customers taking longer to pay. Always compare the trend against industry peers and cross-reference with the cash flow statement to assess whether the business is genuinely liquid or just holding non-cash current assets.
How much the market is paying for each dollar of company earnings
APPLIED MATERIALS INC /DE’s trailing twelve-month P/E has trended upward over the last three years, rising from 13.5x at 2023-01-29 to higher teens and low-20s through 2023–2024, and then accelerating in the most recent quarters. After a period around the low-20s in mid-2024 (22.6x on 2024-04-28; 22.2x on 2024-07-28>), the ratio moved higher through late 2024 and 2025, with a temporary decline to 17.9x on 2025-04-27 before resuming an upward trajectory.
Notable inflection points in the series include the 2025-04-27 dip to 17.9x and the subsequent sustained increase across 2025–2026. The most recent quarter shows the highest value in the period presented, indicating a materially higher market price relative to trailing earnings compared with early 2023 levels. The most recent P/E ratio observed was 32.8x (period end 2026-01-25).
What Is the PE Ratio?
The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics in investing. It divides the current stock price by the company's earnings per share (EPS), revealing how much investors are willing to pay for each dollar of earnings. A high PE can signal that the market expects strong future growth, while a low PE may suggest undervaluation—or reflect genuine concerns about the company's prospects.
Context matters:PE ratios vary significantly across industries. High-growth technology companies routinely trade at PE ratios above 30x or 40x, while mature, low-growth sectors like utilities or financials often trade closer to 10–15x. Always compare a company's PE to its own history and its industry peers, not just an absolute number.
What to Look For:
Key Insight:The PE ratio is a snapshot of market sentiment and expectations. Tracking it over time alongside earnings trends reveals whether the market's valuation has expanded or contracted—and whether that change is justified by fundamentals.