Applied Materials' AI boom comes with a $653 million investment loss

Applied Materials' chipmaking-equipment business is growing fast. Revenue jumped 53% to $10.4 billion in its latest quarter, and operating profit more than doubled. Yet an investment loss put a $653 million dent in the results.

Both reported and adjusted earnings rose sharply, but at very different speeds. The distinction matters when judging what the AI-driven equipment boom is delivering.

The business grew. Investment values fell.

The quarter ended October 25 produced reported net income of $2.72 billion, or $3.40 a share. Adjusted earnings were $4.16 a share, excluding selected acquisition, investment, restructuring and tax items.

The largest current adjustment was an unrealized loss on strategic investments. The $653 million figure is before tax; it reflects a fall in investment values recognized in the accounts, rather than a cash payment of that amount.

Research by Ticker Byline shows that this investment line swung by $1.12 billion against Applied from a year earlier. The comparison moves from a $467 million unrealized gain to the latest $653 million loss.

The company's per-share reconciliation assigns 68 cents of the gap to that investment adjustment, out of a total 76-cent difference between reported and adjusted earnings. A year earlier, removing investment gains reduced adjusted earnings instead.

That helps explain why reported earnings per share grew 43% while adjusted earnings rose 92%. A similar separation between equipment profits and investment losses appeared in ACM Research's latest results.

The equipment boom shows up in operating profit

Applied's Semiconductor Systems sales rose to $8.00 billion from $4.88 billion. The company makes tools used to build chips, and management says AI is driving additional semiconductor demand.

Operating profit across Applied reached $3.66 billion, compared with $1.71 billion a year earlier. Reported operating margin rose to 35.1% from 25.2%. That improvement shows the strength of the operating business before the investment-price movements further down the income statement.

The full fiscal year also set records: revenue reached $34.45 billion, up 21%, and reported earnings were $12.62 a share, up 46%.

A huge quarter was already in the forecast

In August, Applied forecast fourth-quarter sales of $9.75 billion to $10.75 billion and adjusted earnings of $3.82 to $4.22 a share. The actual results exceeded both midpoints but remained inside those ranges.

The next target is larger. For the first quarter of fiscal 2027, Applied expects revenue of $10.6 billion to $11.6 billion and adjusted earnings of $4.15 to $4.55 a share. The earnings outlook includes a four-cent tax benefit related to transfers of intangible assets within the group.

Cash generation supports the stronger quarter

Operations generated $3.30 billion of cash. Subtracting $684 million of spending on facilities and equipment leaves $2.62 billion of free cash flow.

Applied spent $2 billion buying back shares and paid $421 million in dividends during the quarter. Cash and equivalents were $7.24 billion at the fiscal year-end, with another $2.10 billion in short-term investments.

The next results will test whether equipment demand can support the larger sales target. Investment values can move reported profit separately, so the operating margin and cash generated by that growth remain useful measures of progress. The Applied Materials company profile tracks the financial results, capital spending and latest outlook.