Bank of America reset Applied Materials stock forecast after earnings, citing continued acceleration of AI semiconductor equipment demand.

Bank of America has cut its price target for Applied Materials to $650 from $720 while maintaining a Buy rating, citing slower sequential growth and a flatter margin outlook as justification for a lower valuation multiple despite strong AI-driven demand in DRAM and advanced packaging.

Applied Materials supplies equipment, software and services for semiconductor and advanced display manufacturing. Its systems are critical across logic, memory and packaging, giving the company broad exposure to capital spending by major chipmakers and positioning it as a key beneficiary of AI infrastructure investment.

The valuation reset comes after a record fiscal third quarter. Revenue rose 25% year over year to $9.12 billion, while non-GAAP EPS jumped 41% to $3.50. Non-GAAP gross margin reached 50.4%, up 150 basis points from the prior year, and free cash flow totaled $2.33 billion.

However, BofA identified relative weakness against competitor Lam Research. Applied's quarterly guidance implies roughly 13% sequential growth compared to approximately 20% for Lam, while gross margin guidance is essentially flat.

This prompted BofA to compress the valuation multiple from 36 times estimated 2028 earnings to 27 times. Notably, the bank simultaneously raised its EPS estimates for 2026, 2027 and 2028 by 8%, 15% and 22%, respectively.

The core AI businesses remain robust. Applied expects continued second-half growth in DRAM, leading-edge foundry-logic and advanced packaging, with management confident it can outgrow the broader wafer-fabrication-equipment market in 2026. The company highlighted approximately 50% year-over-year DRAM growth and more than 70% advanced-packaging growth, both directly tied to AI infrastructure spending.

The key tension for investors is that earnings are rising faster while BofA is willing to pay less for each dollar of future profits. If these core businesses continue scaling and margins begin expanding again, the lower multiple could prove conservative. Conversely, if revenue growth remains below peers or gross margins stall, the market may continue questioning whether Applied deserves a premium valuation despite record earnings. The next critical indicators will be gross-margin progression and whether Applied can close the growth gap with Lam.