AMAT Targets 50%+ Packaging Growth in 2026, but Valuation and Risks Keep Us Cautious

What happened

Applied Materials has reiterated its expectation for advanced packaging revenue to grow over 50% in calendar 2026, fueled by AI-driven demand for HBM memory and 3D chiplet stacking. The company’s strong Q2 FY2026 results—$7.91B in revenue, 49.9% gross margin, and 31.9% operating margin—underscore robust near-term execution. However, the stock trades at a lofty P/E of 67.6 and EV/EBITDA of 59.5, leaving no margin of safety for potential downside from export control risks or a WFE market share that management expects to remain “below target” in 2025. The bull case hinges on packaging outgrowth converting into durable revenue, but the base case already assumes strong AI-led capex, and any compliance misstep could trigger a denial order that would severely curtail shipments. Until the company demonstrates consistent packaging revenue traction and clarity on export compliance, we maintain our WAIT rating with an attractive entry near $600.

Implication

At $723, AMAT’s valuation embeds optimistic assumptions; patient investors should look for a pullback toward $600 before accumulating. The packaging narrative is compelling but not yet proven as a durable profit driver beyond the current AI cycle. Export control risks remain a discontinuous downside that could materialize on any compliance breach. Insider selling by top executives in June 2026, while possibly routine, warrants monitoring as it clusters near the stock’s highs. The next 6–12 months will be critical to see if packaging revenue actually exceeds 50% growth and if WFE share stabilizes; until then, the risk/reward is unattractive.

Thesis delta

The thesis on AMAT is largely unchanged: strong underlying demand is offset by elevated valuation and regulatory overhang. The key new element is a sharper focus on advanced packaging as a growth driver, but this does not alter our WAIT stance given that the stock price already discounts such optimism. We still see better risk/reward at lower prices or after more concrete evidence of packaging traction and compliance stability.