What Happened?
Shares of semiconductor machinery manufacturer Applied Materials (NASDAQ: AMAT) jumped 7.7% in the morning session after peer Taiwan Semiconductor Manufacturing (TSM) announced plans to raise chipmaking prices by up to 10% starting in 2027, while wafer supplier IQE plc raised its guidance. These developments reaffirmed robust demand for AI and data-center chips alongside the ongoing need for incremental chip capacity. Industry forecasts projected that global chipmaking equipment sales could reach a record high by 2028, driven by the AI boom. As a key supplier of advanced chipmaking tools, Applied Materials stood to benefit from this growth. Taiwan Semiconductor's $100 billion expansion plan in Arizona underscored the massive scale of future equipment needs required to support advanced semiconductor manufacturing.
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What Is The Market Telling Us
Applied Materials’s shares are extremely volatile and have had 32 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 7 days ago when the stock gained 3.6% on the news that a cooler-than-expected June inflation report and a surprise capital expenditure warning from IBM appeared to validate AI hardware demand. June core CPI printed flat month-over-month (2.6% year-over-year versus a 2.9% forecast), reopening the door to a friendlier interest rate environment. Also, IBM CEO Arvind Krishna revealed in a letter that IBM's second-quarter revenue missed expectations because clients abruptly shifted their enterprise budgets toward servers, storage, and memory to secure supply-constrained AI infrastructure ahead of expected price hikes. The combination of a macro tailwind and a fundamental read-through provided a strong setup for chip stocks. The soft inflation print lowers the discount rate, which benefits high-multiple semiconductor valuations. More importantly, IBM's warning acts as direct confirmation that AI infrastructure spending is not slowing down. Instead, it suggests that hardware purchases are actively crowding out enterprise software budgets. The specific mention of "memory" purchases by IBM's CEO likely explains the outsized reaction in Micron and SanDisk. While geopolitical risks remain elevated following renewed U.S.-Iran conflict, the market appears to be treating the IBM commentary as a strong fundamental signal ahead of Taiwan Semiconductor Manufacturing Company's (TSMC) earnings later in the week. Adding to the optimism, several companies announced significant capital investments to expand manufacturing capacity for advanced chips. Driven by the explosive growth in artificial intelligence and high-performance computing, chipmakers are scaling up their operations. Intel announced a €5 billion ($5.7 billion) investment in its Ireland facility to boost production of its Xeon 6 processors. Similarly, Tower Semiconductor is expanding its 300mm manufacturing capabilities in Japan with government support to meet long-term customer demand.
Applied Materials is up 110% since the beginning of the year, but at $564.34 per share, it is still trading 21.9% below its 52-week high of $723 from June 2026. Investors who bought $1,000 worth of Applied Materials’s shares 5 years ago would now be looking at an investment worth $4,089.
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