Applied Materials Sets a 54% Gross Margin Goal for 2030 on AI Equipment Demand

Applied Materials set 2030 targets of a 54% gross margin and a 40% operating margin on Tuesday, saying it expects AI to push spending on chipmaking tools faster through 2030 than over the past decade.

Both targets are non-GAAP and were laid out at the company's investor breakfast during SEMICON West. Applied also said it will return 80% to 100% of free cash flow to shareholders over time.

It is aiming to gain more than 2 percentage points of wafer fab equipment market share from calendar 2025 to calendar 2030.

Leading-edge foundry-logic, DRAM and advanced packaging should drive around 75% of equipment growth between 2025 and 2030, Applied said. Those are the segments most tied to AI accelerators and the high-bandwidth memory stacked beside them.

"The global buildout of AI infrastructure is driving a new era of growth for wafer fab equipment," Chief Executive Gary Dickerson said in the company's release.

Revenue in the fiscal third quarter, according to Applied's quarterly report, rose 25% from a year earlier to a record $9.12 billion. Semiconductor Systems contributed $7.04 billion, or 77%, up 27%. Applied Global Services contributed $1.78 billion, or 20%, up 22%, and the Other segment, mainly display, $294 million. Semiconductor Systems' operating margin widened to 37.7% from 33.0%, and services' to 30.1% from 27.3%.

Memory is taking a bigger share of the equipment business. According to the quarterly report, DRAM accounted for 26% of Semiconductor Systems revenue in the quarter, up from 22% a year earlier. Foundry, logic and other slipped to 67% from 69%, and NAND flash to 7% from 9%.

According to the quarterly report, China remained Applied's largest market at $2.51 billion, or 28% of revenue, down from 35% a year earlier, as China sales fell 2% while total revenue grew 25%. U.S. revenue doubled to $1.37 billion, Taiwan rose 10% to $2.03 billion and Korea rose 31% to $1.52 billion. Two customers accounted for about 20% and 14% of nine-month revenue.

Services carry much of the plan. Applied expects service revenue to grow more than 20% this calendar year and to exceed $12 billion by 2030, a mid-teens compound annual rate. It expects its eBeam inspection and metrology tools to bring in $2 billion of revenue in calendar 2026.

Applied reported a non-GAAP gross margin of 50.4% in its fiscal third quarter, and it has guided to about the same for the fourth. Reaching 54% by 2030 means adding 3.6 percentage points, about 90bp a year (Rackline calculation). For the fiscal fourth quarter, it guided to revenue of $10.25 billion, plus or minus $500 million, and non-GAAP earnings of $4.02 a share, plus or minus 20 cents.

"As AI drives wafer fab equipment growth, we are focused on further increasing profitability and operating leverage while investing in R&D programs that will fuel our outperformance into the future," Chief Financial Officer Brice Hill said.

The margin goals come with heavy spending. Applied plans to more than double its research lab and manufacturing capacity by 2030. It opened its EPIC Center for process and equipment development in Silicon Valley on Monday and has expanded manufacturing in Austin, Texas; Singapore; and Treviso, Italy.

Applied held back near-term figures because it is in its quiet period before fiscal fourth-quarter results, due next month.

The 2030 targets assume adjustments the company says it cannot predict without unreasonable effort.