On July 30, Application Materials Company (AMAT) released its third-quarter earnings report for fiscal year 2026, with data that shocked the entire semiconductor industry: Orders for AI-related equipment grew by 45% year-over-year, setting a new record for the quarter. Orders for advanced packaging equipment more than doubled year-over-year. Against the backdrop of continuously exploding demand for AI computing power, this order data not only injected a boost into the semiconductor equipment sector but also revealed the investment theme for a new round of computing infrastructure building.
## Earnings Highlights: The AI Driver Behind the Surge in Orders
According to the report, Application Materials achieved total revenue of $7.2 billion this quarter, a year-over-year increase of 18%, exceeding market expectations. However, what truly excited analysts was the backlog, which first surpassed $20 billion, with AI chip manufacturing equipment accounting for nearly 60% of it. CEO Gary Dickerson stated in a conference call, "AI is reshaping every stage of semiconductors, from advanced logic to memory and packaging; our equipment is indispensable at every stage."
Of particular note is that advanced packaging equipment became the largest growth driver this quarter. As AI chip giants like NVIDIA and AMD race to adopt 2.5D/3D packaging technologies like CoWoS, foundries such as TSMC and Samsung are accelerating capacity expansion for packaging. As a major supplier of packaging equipment, Application Materials' orders for etching, deposition, and inspection equipment have surged.
## Industry Context: How AI Computing Power Translates to Equipment Demand
The demand for computing power for large AI models training and inference is growing exponentially, directly driving the expansion of AI chips such as GPUs and ASICs. The manufacturing of every advanced AI chip requires a full process of "design-manufacture-packaging-testing," where most stages rely on semiconductor equipment. Taking CoWoS packaging as an example, its process complexity far exceeds traditional packaging, requiring equipment value to increase by 3 to 5 times, creating a massive incremental market for equipment manufacturers.
On the other hand, the explosion in HBM memory also became a major driver of equipment demand. HBM requires TSV (Through Silicon Via) technology for multi-layer stacking, demanding extremely high requirements for etching and thin film deposition equipment. As a core supplier of HBM manufacturing equipment, Application Materials' order growth is closely linked to the expansion plans of memory giants.
## Industry Synergy: Equipment Leaders Welcome a Golden Period
Application Materials' strong performance is not an isolated case. Previously, equipment giants such as ASML, GanLin Group, and KLA also released order data exceeding expectations. The Philadelphia Semiconductor Index (SOX) should see a significant rise after the earnings release, with the semiconductor equipment sector leading the gains. Analysts point out that the investment cycle for AI-driven equipment may last 3 to 5 years and has high visibility.
Looking at the industry chain, the improved sentiment for equipment manufacturers cascades upstream, driving the development of related component and material companies. Simultaneously, cloud computing giants are increasing capital expenditures; Microsoft, Google, and Amazon are expected to spend over $300 billion in total capital expenditures in 2026, most of which will be directed towards AI infrastructure, providing long-term assurance for equipment demand.
## Investment Opportunities: Focus on Equipment and Advanced Packaging Lines
For US investors, the semiconductor equipment sector is becoming a core focus for AI computing investment. Besides Application Materials, the following areas should also be watched:
- Lithography Equipment: ASML (ASML), as the exclusive supplier of EUV lithography machines, continues to benefit from the expansion of sub-5nm process technology.
- Deposition and Etching: GenLin Group (LRCX) and Tokyo Electron (8035.T) hold dominant positions in thin film deposition and etching.
- Inspection and Metrology: KLA (KLAC) is key to yield improvement, and as process complexity increases, the demand for inspection equipment will steadily rise.
- Advanced Packaging Equipment: In addition to application materials, Besi (BESI) and ASM Pacific (522.HK) are also performing strongly in packaging equipment.
Risk Warning and Outlook
Despite the high industry sentiment, investors must be wary of cyclical fluctuation risks. The semiconductor equipment industry has a typical cyclical nature; if AI capital expenditure falls short of expectations, or geopolitical tensions lead to export controls, it could affect order sustainability. Furthermore, excessively long equipment delivery cycles may delay short-term revenue recognition.
Looking ahead, as AI models continue to iterate, the demand for computing power will remain in high growth. Semiconductor equipment, as the "seller" of computing power infrastructure, has potential to further enhance its strategic position and value. Quarterly orders for application materials reaching new highs may just be a milestone in the AI computing cycle, and far from the endpoint.
