DRAM: From 17% to 26% of the MachinesNarrow moat

Applied Materials (AMAT) — moat facet

Stacked memory for AI chips has made DRAM makers a quarter of Applied's machine sales, up from a sixth.

Memory chips have become Applied's second engine. DRAM makers took 26% of Semiconductor Systems revenue in fiscal 2025, up from 17% in 20231, about $5.4 billion of equipment2. In the first quarter of fiscal 2026 the DRAM share reached 34%3, and it was 26% in the quarter to July4.

DRAM share of systems revenue (%)19%FY202119%FY202217%FY202328%FY202426%FY202534%Q1 FY26Applied Materials Forms 10-K FY2022 and FY2025; Q1 FY2026 release
Memory went from a sixth to a third of machine sales at its peak.

The reason is the kind of memory being built. Memory stacked for artificial-intelligence processors needs more deposition, etch and packaging steps per wafer than ordinary memory. Applied's third-quarter release describes new tools for depositing films around the vertical connections in stacked memory, "enabling reliable stacking of 12, 16 and future high-layer-count HBM designs"5. Each additional layer is additional process work.

DRAM also tells how quickly a customer group can swing. Its share was 20% in fiscal 2020, 19% in 2021 and 19% in 20226, before falling to 17% in 2023 and rising to 28% in 20247. Memory spending follows memory prices, and those can reverse within a year.

Applied is well placed here because the new steps are materials problems, which is what it sells. But the customers are few and they build in waves.

The second quarter of fiscal 2026 shows the same pattern. DRAM took 29% of systems revenue and flash 4%8, in a quarter in which systems revenue grew to $5,965 million from a recast $5,401 million a year earlier9. Memory makers were buying for stacked memory, not for more ordinary chips.

The memory steps also connect to packaging. The same release describes films that allow "reliable stacking of 12, 16 and future high-layer-count HBM designs"10, and inspection tools for "HBM and chiplet architectures"11. Memory is becoming a packaging problem as much as a wafer problem, and Applied sells into both.

DRAM gives the business a second leg for now. The share to watch is the DRAM portion of systems revenue; holding above a quarter through a memory price downturn would show the new steps are structural, and a drop back toward 17% would show it was a wave.

Moat trajectory: Widening

DRAM 17% of systems revenue (FY2023) to 26% (FY2025) and 34% in Q1 FY2026.

The number that tests this moat
Reported
DRAM share of systems revenue, latest quarter
26% (Q3 FY2026)

The second engine; a fall back toward 17% in a memory downturn would mean the gain was cyclical.

Source: Applied Materials Q3 FY2026 results release ↗
⚠ Threats to the moat
⚠ THREAT 01
Flash Went From 21% to 4%
Flash makers went from a fifth of Applied's machine sales to a twenty-fifth in three years, and DRAM makers could do the same.
References
  1. ReportedDRAM makers took 26% of Semiconductor Systems revenue in fiscal 2025, up from 17% in 2023, about $5.4 billion of equipment.
    Applied Materials Form 10-K for fiscal 2025 (year ended 26 October 2025) - Semiconductor Systems revenue by end market. — FY2025 · publ. 12 December 2025 · source ↗
  2. Moat Explorer calcDRAM makers took 26% of Semiconductor Systems revenue in fiscal 2025, up from 17% in 2023, about $5.4 billion of equipment.
    Moat Explorer calculation from Applied Materials' reported figures ($ millions unless stated). Segment shares FY2025: Semiconductor Systems 20,798 / 28,368 = 73.3%; Applied Global Services 6,385 / 28,368 = 22.5%; Corporate and Other 1,185 / 28,368 = 4.2%. Segment operating margins FY2025: 7,379 / 20,798 = 35.5%; 1,792 / 6,385 = 28.1%; FY2024 6,981 / 19,911 = 35.1%, 1,812 / 6,225 = 29.1%; FY2023 6,879 / 19,698 = 34.9%, 1,529 / 5,732 = 26.7%. Q3 FY2026 margins: Semiconductor Systems 2,657 / 7,040 = 37.7%; Applied Global Services 536 / 1,781 = 30.1%; company operating margin 3,075 / 9,115 = 33.7%. Q1 FY2026 Semiconductor Systems 1,427 / 5,141 = 27.8%. Nine months FY2026 6,176 / 18,146 = 34.0% and 1,461 / 5,005 = 29.2%. Growth Q3 FY2026: Semiconductor Systems 7,040 / 5,564 - 1 = 26.5% year on year and 7,040 / 5,965 - 1 = 18.0% on the quarter; Applied Global Services 1,781 / 1,463 - 1 = 21.7%; revenue 9,115 / 7,910 - 1 = 15.2% on the quarter; United States revenue 1,367 / 683 - 1 = 100%; Europe 483 / 160 = 3.0 times. Nine months: 18,146 / 16,562 - 1 = 9.6%; 5,005 / 4,236 - 1 = 18.2%. Segment history, revenue: Semiconductor Systems 11,367 (FY2020), 16,286, 18,797, 19,698, 19,911, 20,798 (FY2025), compound growth (20,798 / 11,367)^(1/5) - 1 = 12.8% a year; Applied Global Services 4,155, 5,013, 5,543, 5,732, 6,225, 6,385, compound growth (6,385 / 4,155)^(1/5) - 1 = 9.0% a year, 6,385 / 5,732 - 1 = 11.4% over two years; Corporate and Other including Display 1,607 + 73 = 1,680 (FY2020), 1,634 + 130 = 1,764 (FY2021), 1,331 + 114 = 1,445 (FY2022), 868 + 219 = 1,087, 885 + 155 = 1,040, 1,185 (FY2025); 1,185 / 1,680 - 1 = -29%. Display operating margin 235 / 1,060 = 22% (FY2025) and 51 / 885 = 6% (FY2024). DRAM equipment 26% x 20,798 = about 5,400; flash 7% x 20,798 = about 1,460. Company margins: gross 13,808 / 28,368 = 48.7% (FY2025), 12,897 / 27,176 = 47.5% (FY2024), 12,384 / 26,517 = 46.7% (FY2023); operating 8,289 / 28,368 = 29.2%. R&D 3,570 / 28,368 = 12.6%; 3,570 / 1,451 = 2.5 times (FY2015-FY2025). Effective tax 2,273 / 9,271 = 24.5% (FY2025) and 975 / 8,152 = 12.0% (FY2024). Revenue FY2019 14,608 / 16,705 - 1 = -12.6%. Diluted shares 808 / 1,226 - 1 = -34%. Revenue outside the United States 25,305 / 28,368 = 89%. China share of revenue: 5,456 / 17,202 = 31.7% (FY2020); 7,535 / 23,063 = 32.7%; 7,254 / 25,785 = 28.1%; 7,247 / 26,517 = 27.3%; 10,117 / 27,176 = 37.2% (FY2024); 8,529 / 28,368 = 30.1% (FY2025). Taiwan 6,857 / 4,010 - 1 = 71%. Two largest customers 19% + 15% = 34% (FY2025) and 20% + 14% = 34% (nine months FY2026). Backlog: 15,002 / 19,011 - 1 = -21% (October 2022 to October 2025); Semiconductor Systems 7,105 / 12,691 - 1 = -44%; Applied Global Services 7,141 / 5,643 - 1 = +27%; shares of backlog 7,141 / 15,002 = 48% and 7,105 / 15,002 = 47%. Contract liabilities 3,271 / 2,566 - 1 = +27%; receivables 7,691 / 5,185 - 1 = +48%. Cash: net cash 7,241 + 1,332 - 100 - 6,455 = 2,018 (October 2025); 8,022 + 1,449 - 799 - 5,460 = 3,212 (October 2024); 7,037 + 2,196 - 1,299 - 5,245 = 2,689 (July 2026). Payout 1,384 / 6,998 = 19.8%; dividends plus buybacks 1,384 + 4,893 = 6,277, 6,277 / 7,958 = 79% of operating cash flow. ROE 6,998 / ((20,415 + 19,001) / 2) = 35.5% (FY2025), 40.6% (FY2024), 48.0% (FY2023). Trailing twelve months to July 2026: revenue 6,800 + 24,037 = 30,837; net income 1,897 + 7,370 = 9,267; operating cash flow 2,828 + 5,568 = 8,396; capital expenditure 785 + 1,988 = 2,773. Implied FY2026 revenue at the guidance midpoint 24,037 + 10,250 = 34,287, 34,287 / 28,368 - 1 = 20.9%; fourth-quarter midpoint 10,250 / 6,800 - 1 = 50.7%; implied non-GAAP EPS 8.73 + 4.02 = 12.75. Market: 376,360 / 9,267 = 40.6 times trailing earnings; 376,360 / 30,837 = 12.2 times sales; price 474.25 / 723.00 - 1 = -34.4%; Lam Research 384.36 - 376.36 = 8.00 bn more market value. ASML 662.45 / 376.36 = 1.8 times; KLA 246.05 / 376.36 = 0.65. Calendar year-end 2025 P/E 203,780 / 6,998 = 29.1; fiscal year-end P/E 40.91 / 11.83 = 3.5 times the FY2022 low. Other: services growth FY2025 6,385 / 6,225 - 1 = 2.6%; company revenue 28,368 / 27,176 - 1 = 4.4%; dividends 1,384 / 7,958 = 17.4% of operating cash flow; two largest customers FY2024 12% + 11% = 23%; Korea 1,521 / 1,160 - 1 = 31%; Semiconductor Systems 20,798 / 11,367 = 1.83 times (FY2020-FY2025); Display 1,060 / 1,607 - 1 = -34%; net income 6,998 / 1,377 = 5.1 times and EPS 8.66 / 1.12 = 7.7 times (FY2015-FY2025); revenue 28,368 / 9,659 = 2.9 times; balance sheet build July 2026 6,564 + 7,691 + 5,606 = 19,861; Display revenue excluded from Corporate and Other FY2025 1,185 - 1,060 = 125. Revenue FY2024 27,176 / 26,517 - 1 = 2.5%; R&D Q4 917 / 858 - 1 = 6.9%; revenue 30,837 / 25,785 - 1 = 19.6% (FY2022 to trailing July 2026); strategic investment gains 755 + 949 = 1,704; China less Taiwan nine months 6,688 - 5,902 = 786; forward earnings implied 40.91 / 26.95 = 1.52 times trailing; Q4 guide 10,250 / 9,115 - 1 = 12.5% above Q3. Memory share of systems revenue: DRAM plus flash 19% + 21% = 40% (FY2021), 17% + 6% = 23% (FY2023), 26% + 7% = 33% (FY2025). Market value 376,360 / 182,232 = 2.07 times the FY2025 year-end value; trailing net income 9,267 / 6,998 - 1 = 32%. Operating income 8,289 / 1,693 = 4.9 times (FY2015-FY2025). P/E gap to Lam 57.7 - 40.9 = 16.8. Q3 FY2026 returns 860 / 3,037 = 28% of operating cash flow. China plus Taiwan nine months (6,688 + 5,902) / 24,037 = 52%. Systems revenue Q1 to Q3 FY2026 7,040 / 5,141 - 1 = 37%. Systems share of segment operating income FY2025 7,379 / (7,379 + 1,792) = 7,379 / 9,171 = 80%. Systems R&D 3,042 / 20,798 = 14.6%. Third quarter share of nine-month systems profit 2,657 / 6,176 = 43%. Services FY2024 6,225 / 5,732 - 1 = 8.6%. Services share of backlog 4,335 / 11,758 = 37% (October 2021). Research per diluted share 1,451 / 1,226 = 1.18 (FY2015) and 3,570 / 808 = 4.42 (FY2025). Net cash plus long-term investments 2,689 + 5,268 = 7,957. Dividends per share 1.78 / 1.22 - 1 = 46%. ROE 35.5% / 10% = 3.5 times - segment shares, margins and growth - segment revenue shares and growth. — FY2015-FY2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in Applied Materials' Forms 10-K and 10-Q, results releases and market data; operands shown in the source line.
  3. ReportedIn the first quarter of fiscal 2026 the DRAM share reached 34%, and it was 26% in the quarter to July.
    Applied Materials first-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - the BIS charge, the EPIC Center and manufacturing capacity. — Q1 FY2026 · publ. 12 February 2026 · source ↗
  4. ReportedIn the first quarter of fiscal 2026 the DRAM share reached 34%, and it was 26% in the quarter to July.
    Applied Materials third-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - record revenue, segment results, revenue by geography, employees and fourth-quarter guidance - segment results and end-market mix. — Q3 FY2026 · publ. 13 August 2026 · source ↗
  5. ReportedApplied's third-quarter release describes new tools for depositing films around the vertical connections in stacked memory, "enabling reliable stacking of 12, 16 and future high-layer-count HBM designs".
    Applied Materials third-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - record revenue, segment results, revenue by geography, employees and fourth-quarter guidance - highlights, income statement, cash flow, quotes and fourth-quarter guidance. — Q3 FY2026 · publ. 13 August 2026 · source ↗
  6. ReportedIts share was 20% in fiscal 2020, 19% in 2021 and 19% in 2022, before falling to 17% in 2023 and rising to 28% in 2024.
    Applied Materials Form 10-K for fiscal 2022 - segment results for FY2020-FY2022 including Display and Adjacent Markets, employees, China revenue, the Kokusai termination fee and backlog. — FY2022 · publ. December 2022 · source ↗
  7. ReportedIts share was 20% in fiscal 2020, 19% in 2021 and 19% in 2022, before falling to 17% in 2023 and rising to 28% in 2024.
    Applied Materials Form 10-K for fiscal 2025 (year ended 26 October 2025) - segment note: revenue, operating income, gross margin, research, capital spending and goodwill. — FY2025 · publ. 12 December 2025 · source ↗
  8. ReportedDRAM took 29% of systems revenue and flash 4%, in a quarter in which systems revenue grew to $5,965 million from a recast $5,401 million a year earlier.
    Applied Materials second-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - the 15% dividend increase and the calendar-2026 outlook. — Q2 FY2026 · publ. 14 May 2026 · source ↗
  9. ReportedDRAM took 29% of systems revenue and flash 4%, in a quarter in which systems revenue grew to $5,965 million from a recast $5,401 million a year earlier.
    Applied Materials second-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - the 15% dividend increase and the calendar-2026 outlook. — Q2 FY2026 · publ. 14 May 2026 · source ↗
  10. ReportedThe same release describes films that allow "reliable stacking of 12, 16 and future high-layer-count HBM designs", and inspection tools for "HBM and chiplet architectures".
    Applied Materials third-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - record revenue, segment results, revenue by geography, employees and fourth-quarter guidance - highlights, income statement, cash flow, quotes and fourth-quarter guidance. — Q3 FY2026 · publ. 13 August 2026 · source ↗
  11. ReportedThe same release describes films that allow "reliable stacking of 12, 16 and future high-layer-count HBM designs", and inspection tools for "HBM and chiplet architectures".
    Applied Materials third-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - record revenue, segment results, revenue by geography, employees and fourth-quarter guidance - highlights, income statement, cash flow, quotes and fourth-quarter guidance. — Q3 FY2026 · publ. 13 August 2026 · source ↗
Sources
Generated September 25, 2026