Applied Materials, Inc. CFO Brice Hill Discusses AI-Driven Growth and Market Dynamics at Bank of America Global Technology Conference 2025

Key Takeaways

TL;DR: Applied Materials reported steady +7% growth driven by strong AI-related investment in semis (esp. leading-edge and high-bandwidth memory) despite some headwinds in mature logic. Key points included derisked China exposure in mature logic, robust packaging & svcs growth, margin improvements in core equipment, and a disciplined capital allocation strategy toward R&D, dividends, and buybacks.

• Industry Dynamics & Secular Growth
  • AI-Driven Investment: Brice Hill emphasized that AI is accelerating demand across leading-edge tech including GPUs, CPUs, and accelerators. This is pushing investments in high-bandwidth memory (HBM) and novel multichip packaging techniques.
  • Secular Semiconductor Growth: The CFO reiterated that semis continue to be a secular growth area with mid- to high-SD CAGR anticipated, even as macro dynamics create uneven Q growth.
• Growth Mix & Equipment Spending
  • +7% Overall Growth: Applied Materials’ biz has grown +7% this year—firmly reflecting strong demand from the leading-edge side, albeit offset by slower mature logic sectors (e.g., ICAPS covering IoT, auto, sensors).
  • WFE Intensity Outlook: Despite mixed growth rates among peers (some reporting DD), the co is confident that overall wafer fab equipment (WFE) spending remains robust, anchored by increased wafer starts across DRAM, mature logic, and leading edge.
• China Exposure & Competitive Position
  • Derisked China Biz: Approx. 25% of equipment rev. comes from China, primarily in mature logic (e.g., 28-nanometer nodes). Applied Materials is less exposed to restrictions affecting DRAM/NAND and leverages its world-class supply chain and svc offerings to maintain competitive share.
  • Evolving Domestic Competition: While Chinese vendors are improving, Hill noted that the co’s comprehensive offering—including advanced supply chain, svc support, and innovation pipeline—ensures its competitive edge.
• Packaging Biz & HBM Trends
  • HBM Installation: Last year, HBM packaging tools contributed about $700M of a $1.7B packaging biz. Although the pace has moderated after initial capacity buys, the long-term target is to see the packaging segment double over 3–5 years as energy efficiency and performance demands climb.
  • Innovation Across the Stack: Continued focus on innovations (bonding techniques, interconnects, substrates) are expected as customers migrate to advanced packaging solutions like HBM4.
• Leading-Edge Process & Node Transition
  • Gate-All-Around & Beyond: Equipment for next-gen processes (gate-all-around and future CFET) drives purchases, as these nodes involve ~200 additional process steps relative to previous generations. This ensures a steady equipment demand despite node transition risks (e.g., TSMC’s move to 2-nanometer).
• Gross Margins & Biz Mix
  • Margin Improvements: Core equipment GP margins have improved from the mid-47% range to 48–49% w/ pricing improvements. However, overall margins are tempered by lower-margin segments such as the display biz (OLED) and svcs.
  • Portfolio Balance: Investors should note that the mix between high-margin equipment and lower-margin svcs/display investments influences the composite margin profile.
• Services Biz Strength
  • Recurring Rev. Model: Around 85% of the svcs biz is recurring, w/ two-thirds under subscription contracts. Brice highlighted a low DD growth rate driven by expanding the installed base and incremental AI-driven svc offerings.
  • Capital Return Philosophy: The strong svcs performance supports a robust dividend history (+23–25% in past years, +15% this year) and consistent share buybacks, tying returns directly to recurring profits.
• Capital Allocation & Future R&D
  • Investment in Inflection Points: The co is heavily investing in R&D (e.g., new long-term collaboration lab in Sunnyvale) to drive long-term innovation. This commitment supports the strategy of returning 80–100% of excess profits to shareholders, balancing between dividend payouts and buybacks.
• Valuation Context
  • Comparative Multiples: In response to queries on semicap valuations versus analog peers, Hill stressed the long-term secular trend, diversified semiconductor applications, and historical growth performance as key justification for current multiples, despite perceived volatility from older analog sector perspectives.

This call provides investors with confident insights into how Applied Materials is strategically positioned to capitalize on AI and advanced semiconductor trends while maintaining balanced growth, competitive margins, and shareholder-friendly capital returns into the longer term.

Call Q&A

• Vivek Arya: How has the demand environment shaped up versus expectations at the start of the year?
  • Brice Hill: Applied Materials is not surprised by the dynamics of the year. The focus is on energy-efficient compute driven by AI, leading to strong investment in semiconductor tech. The biz is growing at about +7% this year, w/ strong AI demand offset by slower mature logic biz.
• Vivek Arya: Is the mid-SD WFE environment estimate accurate for this year?
  • Brice Hill: Applied Materials sees growth in the equipment environment. The biz is growing at approx. +7% YoY, driven by leading-edge tech. Different growth rates among cos may be due to their association w/ NAND.
• Vivek Arya: Is the effect of China restrictions already captured in industry expectations?
  • Brice Hill: Applied Materials feels derisked from trade changes as its biz in China is mostly mature logic. The co expects to compete well in the 28-nanometer market, which is a 16-year-old tech.