---
ticker: "AMAT"
company: "Applied Materials, Inc."
date: "2026-10-16"
view: "Avoid"
fair_value: 268.19
price: 409.29
price_source: "market data SIP daily bar close of the regular session ending 2026-10-16T20:00:00Z; last regular-session trade 409.38 at 2026-10-16T19:59:59Z, +0.02%; market data quote 409.29; read 2026-10-18"
price_time: "2026-10-16T20:00:00+00:00"
price_vs_fair_value: "+52.6%"
bear: 125.38
bull: 452.86
exit_price: 355.17
p_price_justified: "20-50%"
restated: "2026-10-26"
method: "case-spread-2026-10-24"
original_fair_value: 290.17
original_view: "Avoid"
page: "https://alpha.dming.si/research/2026-10-16-amat"
---

# AMAT · Applied Materials, Inc. · Avoid

Research report as of 2026-10-16. Page: https://alpha.dming.si/research/2026-10-16-amat

We value AMAT at $268 a share. The report's $409.29 price (Oct 16, 2026) was 53% above fair value: Avoid.

_Restated Oct 26, 2026 (method case-spread-2026-10-24); the report's original value was $290, Avoid._

| Lens | Range | Marks |
| --- | --- | --- |
| Our report | $125 to $453 | fair $268; original $290 |
| Our simulation | $142 to $517 | median $266 |
| Street targets (15) | $530 to $900 | average $660, median $625 |
| Price | | $409.29 |

Bands run from our bear to bull (the hollow mark is the original $290), our simulation's 10th to 90th percentile and the Street's low to high. Street targets forecast future prices, not value today. Market data, captured Oct 18, 2026.

| Figure | Value |
| --- | --- |
| Fair value | $268 |
| Price | $409.29 (market data, Oct 16, 1:00 PM PT) |
| Five-year return | 1.4% (a year, at the report's price) |
| Bear / bull | $125 / $453 |
| Exit price | $355 (on Oct 26, 2031) |
| Confidence | 30% |
| Price against our scenarios | The price is justified in 20-50% of our scenarios (20,000 simulated outcomes, each drawing the uncertain drivers from ranges we chose: our judgement, not a measured chance) |

_This text argues the original call. The current figures are at the top._

**Original call, Oct 16, 2026 (before the Oct 26, 2026 restatement)**

_As of 2026-10-16 · written 2026-10-18 · blinded (model and assumptions committed and pushed in before this report; no AMAT quote, multiple, target, rating or Street estimate was read). Exposure, listed in assumptions.md: training memory of 2025 prices; peers' multiples and Street estimates for the outside view; Applied's weekly returns for its beta. US dollars per diluted share, 800M shares. Revised twice on 2026-10-18, both times with the market known: after a model audit and an opposite-side review (central $319.65), then after the model auditor's rerun of that revision (this version). Every finding and its answer, with the value before and after, is in "Review findings and answers" (section 8); the blind values are kept in record.json._

- **Fair value today:** $290.17 per share (cost of equity 10.48%); $283.67 weighting bear/central/bull 25/50/25 (our weights). The blind commit said $298.65 (central), $286.30 (weighted); the first revision said $319.65, $301.40
- **Price:** $409.29, market data SIP daily close of the regular session ending 2026-10-16 20:00 UTC (last trade $409.38 at 19:59:59 UTC; read 2026-10-18, markets closed since) → fair value 0.71x the price, 29% below
- **Five-year exit price:** $374 at 2031-10-26, the mean of the long fade $325 and the outside view $423 (16.7x FY2031 EBIT); fade at 10/20 years $369/$378; value-driver formula 17.2x NOPAT against the fade's 14.3x; after about $74 a share paid out over FY2027-31
- **Five-year return:** 2.3% a year at the price, payouts included (bear -11.5%, bull 9.9%)
- **Purchase price:** $273 to earn the 12% hurdle (the yearly return we require)
- **Bear / bull today:** $154.92 / $399.42 from coherent operating cases
- **Confidence:** 30% (subjective, not calibrated): chance the FY2031-end value lands within ±20% of $374
- **Moat:** Wide but not exclusive. The largest and broadest wafer-tool maker (deposition, etch, implant, CMP, eBeam inspection), with a services business that has grown every year since FY2014. Against it: no single-source tool like EUV, Lam and Tokyo Electron compete in its biggest lines, China is 28% of revenue under tightening rules, and Chinese makers take mature nodes
- **Market expects:** About the Street's revenue through FY2029 ($46.8B, $57.1B, $62.8B against our $44.1B, $49.0B, $53.4B) at our margins and exit: $309-$343 a share (street_path.txt). Not the Street's FY2030 jump to $80.4B, which takes it to $434
- **Price needs:** An exit price of $570 (22.6x FY2031 EBIT against the peers' 16.7x ten-year median; ours $374), or WFE of $373B in 2031 alone (our $228B, bull world $253B; 21.3% a year from 2025 against our 11.8%). No other driver reaches the price alone inside its bracket: share drift +6 points gives $350, Systems gross margin 65% $347, services growth 25% a year $314, Systems growth of 10% a quarter in FY2027 $342, the exit multiple at 30x $390, opex at 0 cents per added revenue dollar $321. The Hold line ($348, 0.85x the price, where the view would move from Avoid to Hold) needs WFE $297B, or share drift +5.7 points, or Systems margin 65.2%
- **P(price justified):** 8.0% of our scenarios (subjective, not calibrated; the blind commit said 8.7% on narrower ranges, the first revision 15% on a WFE top of $330B): simulated median $273, 10th to 90th $164-$403
- **Key driver:** Wafer-fab equipment (WFE) spending in 2031: $190B or $265B against our $227.9B moves value -$35.8 / +$30.9. Next: Applied's FY2031 operating margin, 33.7% (Q3 FY2026 actual) or 39.8% (management's 40% non-GAAP, in GAAP terms) against our 35.2%, -$11.1 / +$35.3; opex per added revenue dollar, 12 or 44 cents against our 17, +$9.5 / -$54.5; FY2027 Systems growth after Q4, 0% or 4% a quarter against our 2%, -$11.9 / +$12.2; Applied's FY2030 share, back at its FY2025 level or two points above it, against one point above, -$13.9 / +$15.1
- **Street:** Street average target $659.83 (median $625, $530-$900), 15 targets in the last quarter, captured 2026-10-18 14:41 UTC; horizons and update dates absent; our $290 is 0.44x it. The target is 26.9x the Street's own FY2028 EPS ($24.50) and 18.3x FY2030 ($36.10, 7 analysts). An expectations reference, not validation

**We rate Applied Materials Avoid: our central fair value is $290.17 a share,
29% below the $409.29 price (0.71x), and the price would need a cycle with no
down year.** Applied sells the machines that chipmakers use to build chips, so
its sales follow how much chipmakers spend on new equipment, which fell in the
downturns of 2009, 2019 and 2023. No single driver reaches the price inside our ranges. The
Street's revenue through FY2029 is worth $309-$343 on our margins and exit,
and only the Street's FY2030 jump takes it above the price ($434).

**How to read the numbers.**

- **Cases.** The central case is our best estimate. The bear case is a
  severe but plausible bad outcome and the bull case the matching good one.
  The central case sets the view; the bear and bull show how far the value
  could move.
- **WFE and SEMI.** WFE is wafer-fab equipment, the tools chipmakers buy to
  process wafers, and SEMI is the industry body whose forecasts we use. Applied's
  Systems revenue is its share of WFE.
- **Segments.** Semiconductor Systems ("Systems") is the tool business; AGS
  (Applied Global Services) is the services business; "Other" is display and
  related.
- **The exit price** at the end of FY2031 is the mean of two estimates. The
  long fade lets growth and returns drift toward mature levels over many
  years ($325). The outside view values FY2031 operating profit (EBIT) at the
  multiple similar companies have traded at over ten years ($423). NOPAT is
  operating profit after tax.
- **Fiscal years.** Applied's fiscal year ends in late October, so FY2026
  ends 2026-10-25.
- **GAAP and non-GAAP.** GAAP is the standard accounting measure; non-GAAP is
  the company's adjusted measure, which leaves out items such as acquisition
  charges and restructuring.
- **The Hold line** is the fair value ($348, 0.85x the price) at which our
  rule would move the view from Avoid to Hold.
- **Tags.** [I] marks an assumption of our own with no dated source.

Applied sells the machines that deposit, etch, implant, polish and inspect
the layers of a chip, and services the installed base. FY2026 revenue will
be about $34.5B: Semiconductor Systems $26.2B, services (AGS) $6.9B and
display and other $1.4B. Systems revenue is Applied's share, about 18.8%, of
an industry WFE total that SEMI puts at $143.9B in 2026, +21.8% in 2027 and
+14.1% in 2028. FY2027 Systems starts from our $8.03B forecast for Q4 FY2026
and grows 2% a quarter, which lifts the FY2027 share to 19.9%; the share then
drifts down to 19.3% in FY2030, one point above FY2025 and half of what
management targets. The central case takes SEMI's two years, then +9.6% in
2029 (SEMI's 300mm outlook of 2026-10-13), a flat 2030 that is our own
undated pause assumption, and +4% in 2031. Systems gross margin is held at
today's 55.3%, which keeps the operating margin near 35%, the level the Q4
FY2026 guide supports; management's claim is 40% non-GAAP. FY2031 revenue is
$56.4B at a 35.2% operating margin. With 90% of free cash flow paid out, that
is worth $290.17 a share today. The value rests mostly on how high the cycle
sits in 2029-31, which no order book covers: only $28.75 of it is dated by
cash on hand and the FY2027-28 payouts. The Q4 FY2026 release on
2026-11-12 and the Affiliates Rule decision on 2026-11-10 (the US export
rule that extends controls to companies 50% or more owned by listed parties)
are the next tests.

## 1. Business economics: tool spending per wafer rises, but the cycle sets the year

**Who pays.** Chipmakers buy tools when they add capacity or move to a new
node. In Q3 FY2026 Systems revenue was 67% foundry and logic, 26% DRAM and
7% flash; the customers are few (TSMC, Samsung, Intel, SK hynix, Micron and
Chinese fabs). Tool spend per wafer rises with each node, because gate-all-
around transistors, backside power, 3D DRAM and hybrid bonding add process
steps, and those steps are mostly deposition, etch and materials
modification, where Applied is largest. Management says about 75% of WFE
growth to 2030 is in areas where it leads (investor meeting 2026-10-13,
management claim).

**What limits it.** The cycle: WFE fell in 2009, 2019 and 2023, and every
fall cut Applied's margin. Company gross margin dropped 17 points in FY2009
and 1.3 points in FY2019's 13% revenue fall (10-Ks, sector note). China
policy: management says its access to China's WFE fell from about 90% to
about 70% in 2025. Competition in each tool line, and capacity: Applied is
more than doubling its manufacturing capacity (Singapore campus) for a
demand path that is not ordered yet.

**Services.** AGS sells spares, service contracts, upgrades and AIx
analytics on 37,000 connected chambers, with contracts longer than two and
a half years and above 90% renewal (management). It grew from $2.11B in
FY2014 to $6.39B in FY2025 and never fell in a year. Its gross margin
(35.6% in Q3 FY2026) is well below Systems (55.3%): it is steadier, not
richer.

**Cash.** Applied pays out 80-100% of free cash flow. Net financial claims
are small: $14.5B of cash and investments and a $1.2B CHIPS investment tax
credit expected in cash, against $6.6B of debt at principal and $5.0B of
leases, long-term tax payable, deferred tax on investment gains, pensions
and operating cash (+$5.65B, $7.06 a share, with Q4 cash). Stock pay runs
about $0.7B a year and is in the cost lines, GAAP and Applied's non-GAAP
alike; buybacks offset dilution, which the 800M share count holds flat.

## 2. Results: Applied has never missed its revenue guide in eight quarters

Q3 FY2026 (reported 2026-08-13): revenue $9.115B against a $8.95B guide
midpoint (+1.8%), GAAP gross margin 50.3% (+1.5 points year on year, the
13th straight rise), operating margin 33.7%, free cash flow $2.33B. The Q4
guide is $10.25B ± $0.5B (+51%), non-GAAP gross margin about 50.4% and
non-GAAP EPS $4.02 ± $0.20.

The guidance record over eight quarters: actual revenue landed 0.0% to
3.4% above the midpoint, median +1.6%, never below. We forecast Q4 at
$10.41B (range $10.15-10.70B), Systems $8.03B, AGS $1.86B, non-GAAP gross
margin 50.5% and EPS $4.10; these are in assumptions.md, committed before
the release.

Management's calendar 2030 model (2026-10-13): AGS above $12B, other above
$2B, 54% non-GAAP gross margin, 40% non-GAAP operating margin, 15% tax and
more than two points of WFE share gain from 2025. It is "not a WFE model";
Systems is to grow faster than the industry.

## 3. Our forecast gives $290.17, below management's targets

The model is `model.py`; its run is `output.txt`;
inputs and reasons are in `assumptions.md`.

| FY | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 |
| --- | --- | --- | --- | --- | --- | --- |
| Calendar WFE, $B | 143.9 | 175.3 | 200.0 | 219.2 | 219.2 | 227.9 |
| Applied's share | 18.8% | 19.9% | 19.7% | 19.5% | 19.3% | 19.1% |
| Revenue, $B | 34.45 | 44.05 | 48.97 | 53.42 | 54.51 | 56.44 |
| Gross margin | 50.0% | 50.7% | 51.0% | 51.1% | 50.9% | 50.8% |
| Operating margin | 32.2% | 35.5% | 35.5% | 35.5% | 35.3% | 35.2% |
| NOPAT, $B | 9.87 | 13.61 | 14.78 | 16.11 | 16.35 | 16.87 |
| Paid out, $B | | 8.54 | 10.72 | 12.41 | 13.50 | 13.85 |

FY2027 has 53 weeks (it ends 2027-10-31; FY2026 ends 2026-10-25), and its
first quarter has 14. The 53rd week adds about $0.8B of revenue in FY2027 and
falls out again in FY2028. FY2027 starts from the Q4 FY2026 forecast: Systems
$8.03B and R&D plus SG&A $1.58B a quarter, then Systems grows 2% a quarter
and R&D plus SG&A rise 17 cents for each dollar of revenue above the Q4 run
rate.

**Against management.** FY2027 Systems grows 31%: the Q4 FY2026 forecast
annualised is already 23% above FY2026, and 2% a quarter on top fits
"another strong growth year". Our FY2030 is below the 2030 model on every
line: gross margin 50.9% (GAAP) against 54% (non-GAAP), operating margin
35.3% against 40%, AGS $10.4B against more than $12B, Other $1.8B against
more than $2B. GAAP and non-GAAP margins differ by only 0.1 to 0.2 point in an
ordinary quarter (Q2 FY2026 31.9% against 32.1%; Q3 FY2025 30.6% against
30.7%), so the target is about 39.8% in GAAP terms, not 39%: the 1.0-point gap
in FY2025 (29.2% against 30.2%) holds a $181M restructuring charge in Q4
FY2025, and Q1 FY2026's 3.9-point gap holds a $253M legal settlement
(releases 2025-11-13 and 2026-02-12).

**Margin: held at what the guide supports.** The central operating margin is
held at the level the latest dated guide supports and stays flat from there.
The Q4 FY2026 guide (revenue $10.25B, gross margin about 50.4%) with Q4 R&D
plus SG&A of $1.58B gives 35.0% at the guide midpoint and 35.3% on our Q4
forecast; Q3's actual was 33.7%. Systems gross margin is held at Q3's and the
guide's 55.3%, which gives 35.5% in FY2027 falling to 35.2% in FY2031 as AGS
and Other margins rise a little. Management's 40% non-GAAP (39.8% GAAP) is a
claim: the CFO's bridge on 2026-10-13 (value pricing, mix toward Systems
above 55% of revenue, operational efficiency; a 54% gross margin by 2030 at
about 100 basis points a year; 200-300 basis points of operating leverage
from AI automation) names no dated pricing or mix action with a number, so the
rule applies and the claim is disclosed. The remaining gap is 4.6 points
(35.2% against 39.8%); closing it is worth +$35.30 a share and the Q3 actual
of 33.7% is -$11.10. Before this revision the central margin rose to 36.9% on
a Systems gross margin that gained 0.4 point a year; holding it flat is
-$11.91.

**Share: half the target, from FY2025.** Management's target is more than
two points of WFE share from 2025 to 2030. FY2025 was 18.3%; we take one
point, so FY2030 is 19.3% (the target is 20.3%). The Q4 exit rate lifts the
FY2027 share to 19.9%; the drift after that is the input that puts FY2030 at
FY2025 plus one point, and it is negative (-0.9 point by FY2031) because the
Q4 level partly reflects the FY2026 cycle. Before this revision the share kept
rising, to 20.5% in FY2030 (FY2025 plus 2.1 points, above the target we said we
were halving): the correction is -$17.57. FY2030 at 20.3% (the whole target)
is +$15.05; back at 18.3% is -$13.94.

**Against history.** Revenue grows 10.4% a year FY2026-31, against the
12.2% a year management cites for the last ten years. The mature return,
48%, is Applied's own pooled figure for FY2016-25. From FY2027 R&D and SG&A
rise 17 cents for each dollar of revenue added, in every case. 17 cents is
an endpoint ratio: opex rose by 17.0% of the revenue added from FY2016 to
FY2025 (12 cents in FY2016-22 while revenue grew, 44 cents in FY2022-25
while it was flat). The least-squares slope of opex on revenue over the same
ten years is 15.8 cents, which is worth +$2.55. FY2027 starts from the Q4
FY2026 exit rate (R&D plus SG&A of 15.2% of revenue) and that anchor is worth
+$11.67; we keep it, because the Q4 run rate is the nearest dated cost base.
Opex is 15.6% of FY2031 revenue against a ten-year low of 16.1%; at 44 cents
the value is $54.48 lower.

**Value.** The exit is the mean of the long fade ($325) and the outside view
($423, 16.7x EBIT, the median of LRCX, KLAC and ASML's ten-year median
multiples). The outside view sits 30% above the fade because the peers'
history did not include a fade to 3% growth. At WACC 10.22% and cost of
equity 10.48%, fair value is $290.17. The cost of equity includes our standing
calibration of -1.00 point (set 2026-10-16 so that the median fair value
of our current batch of reports sits near 0.85x the Street target; it has no
direct evidence); without it the
value is $267.96.

**Where we differ from the sector note.** We now take its WFE path: our
AI semis note proposed +9.6% in 2029 and flat in 2030, which matches SEMI's
300mm outlook of 2026-10-13 ($149B in 2026 to $227B in 2029, a 1.52x rise, as
our 1.52x from $143.9B). The blind model had +5% and -3% and no dated reason
for either. The flat 2030 is our own assumption [I], a pause after three
double-digit years. It is undated, and it moves value toward the price: flat
instead of the blind -3% is +$6.85 on the first revision's central (+$6.03 on
this one), and no dip at all adds $8.04. If SEMI's growth stops after 2028
(flat to 2031), the value is $265.91 (-$24.26). We lean less on management's
share target than its "more than two points": we take one.

**Sensitivity.** WFE in 2031 is the largest: -$35.8 at $190B and +$30.9 at
$265B (+$36.7 at $272B, the highest six-year window in the sector note's
series). The operating margin follows: 33.7% or 39.8% in FY2031 is -$11.1 or
+$35.3. Opex added per revenue dollar at 12 or 44 cents is +$9.5 or -$54.5.
FY2027 Systems growth after Q4, 0% or 4% a quarter against our 2%, is -$11.9
or +$12.2. FY2030 share at FY2025 or two points above it is -$13.9 or
+$15.1. FY2031 NOPAT ±10% in the fade alone is ±$9.8. AGS growth ±2 points a
year is about ±$2.5. Growth after FY2031 at 4% or 6% is -$4.8 or +$5.0. The
mature return barely matters (under $2.1 between 30% and 50%), because
returns on new capital are already high. Applied's own beta (1.48 against the
peers' 1.47) is -$1.

## 4. Questions the sector note asked, and our answers

Our semiconductor-equipment sector note
(note) set questions for each company.
Our answers for Applied:

**Which WFE total and what share?** Management cites WFE without naming
a source and gives no WFE forecast. On SEMI's total mapped to Applied's
fiscal year, Systems was 19.1% in FY2024 (old segment basis), 18.3% in
FY2025 (recast, with 200mm now in Systems) and 18.8% in FY2026 with the Q4
guide. The FY2024-25 fall is the China access loss management describes.

**What is the revenue mix over the last eight quarters?** (Systems revenue split; China share
of total revenue; releases and 10-Qs):

| Quarter | Foundry/logic | DRAM | Flash | China |
| --- | --- | --- | --- | --- |
| Q4 FY2024 | 73% | 23% | 4% | 30% |
| Q1 FY2025 | 68% | 28% | 4% | 31% |
| Q2 FY2025 | 65% | 27% | 8% | 25% |
| Q3 FY2025 | 69% | 22% | 9% | 35% |
| Q4 FY2025 | 65% | 29% | 6% | 29% |
| Q1 FY2026 | 62% | 34% | 4% | 30% |
| Q2 FY2026 | 67% | 29% | 4% | 27% |
| Q3 FY2026 | 67% | 26% | 7% | 28% |

FY2026 quarters are on the recast basis. Applied does not split leading
edge from mature nodes, or HBM from other DRAM.

**What happens in a year with WFE down 15-20% and no China fill?** From the central
FY2027, WFE -18%, China -20% and AGS +3% (its weakest history): revenue
falls from $44.1B to $36.3B (-18%), EBIT from $15.6B to $10.3B, a 28.3%
margin. The bear case spreads such a fall over FY2028-29.

**How much of China is by customer type?** Not disclosed. The one number is Applied's
own Affiliates Rule estimate: about $0.6B of FY2026 revenue, about 6% of
China revenue (8-K 2025-10-02). The rest of the split is a range we cannot
set from filings. The bear case charges $0.6B a year, scaled with WFE.

**Where did the gross margin gain since FY2022 come from?** Company GAAP gross margin rose from
46.5% (FY2022) to 48.7% (FY2025) and 50.0% in FY2026 with the Q4 forecast.
Management attributes it to value pricing and the portfolio; Applied does
not split price, mix and cost. China fell from 37% to 28% of revenue over
the same time and the margin still rose, so China mix was not the whole
gain (inference). Our central holds Systems gross margin at today's 55.3%,
so company gross margin edges up only with mix; the bear takes 2.5 points off
in the down years.

**What do backlog and terms show?** The 10-Q gives no backlog figure.
Contract liabilities rose from $2.57B (2025-10-26) to $3.27B (2026-07-26),
+27%, while revenue was guided up: no sign of the sector note's test E8 (order books are real: contract
liabilities falling while revenue is guided up). Cancellation
terms are not disclosed beyond the 10-K's risk language.

**What are capex and headcount for the peak?** Capex rose from $1.19B (FY2024) to
$2.26B (FY2025) and about $2.0B in the first three quarters of FY2026; the
$500M Singapore campus doubles clean-room capacity there. Headcount was
36,500 at FY2025 end (35,700 a year earlier). The model keeps capex at 6.5%
of revenue in FY2027 (a path of 8%, 7%, 6%, 5.5% and 5% is -$3.72 a share)
and charges depreciation at 10% of plant; in the bear
case the extra plant costs about $0.1B a year in depreciation (inference), small against
gross profit. The larger trough cost is people, which the bear case charges
by holding R&D and SG&A at their dollars when revenue falls (the 17-cent rule
adds cost with revenue and never removes it).

**Questions specific to Applied.**

- *AGS durability.* Strong evidence: it never fell in a year, contracts run
  two and a half years with over 90% renewal, and 37,000 chambers are
  connected (90,000 planned by 2030). The contracted share is not disclosed;
  the subscription rate is "low 40%" rising to near 70% by 2030
  (management). We take +15% in FY2027 fading to 8%, below the mid-teens
  model, and keep the margin at 35.8-37.4%, below Systems.
- *DRAM and HBM packaging separately; Chinese DRAM in FY2024.* Not
  disclosed. DRAM was 22-34% of Systems in the last eight quarters; Applied
  does not split Chinese DRAM customers.
- *Display ("Other").* A drag for now: Q3 FY2026 other revenue $0.294B with
  a $0.118B operating loss (ramp costs). The CEO said on 2026-10-13 the
  two businesses run at "around $400 million per quarter" and that he would
  not model anything near term beyond that; the Q4 guide of about $0.51B is
  one quarter above it. We take $1.6B to $1.9B at a 28% gross margin; four
  times the Q4 guide ($2.08B) in FY2027-28 adds $0.52 a share.
- *The suspended BIS denial order.* Applied paid $253M in Q2 FY2026; the
  denial order is suspended and waived after three years if the audits are
  done (10-Q). A failed audit could revive the order, which would bar
  exports; that is a legal risk we cannot size, and it is not in the cases.
- *Doubling output capacity by 2028.* Capacity is for the path, not proof of
  demand. Our central FY2028 Systems revenue is $38.5B, 47% above FY2026;
  the bull reaches $42.6B. If demand stops at the FY2026 level, the fixed
  cost of the extra plant is about $0.1-0.2B a year of depreciation; the
  bear case covers it.

## 5. The bear case, the bull case, and why we sit in between

**Bear ($154.92).** FY2027 Systems stay at the Q4 FY2026 level (no
sequential growth; WFE +12% in 2027), then WFE -15% and -5% (digestion after
a three-year build, as in 2019 and 2023), reaching only $146B in 2031.
Applied loses 1.5 points of share to China rules and Chinese toolmakers and
$0.6B a year of China revenue. This is a share-loss bear, so the Q4 share
step (the FY2027 level above FY2026) fades to zero by FY2031: FY2031 share is
17.3%, 1.1 points below FY2025 (-$20.32 against holding the step). Systems
margin falls to 52%. R&D and SG&A follow the same 17-cent rule as the other
cases, which keeps their dollars when revenue falls (+$5.32 against the
growth lists the bear had). FY2031 operating margin 28.8%, NOPAT $8.3B. The
mature return is the central's 48%: this world's lost share, price and volume
are charged in its revenue, share and margins, and a 25% return on top
charged them a second time (+$3.03). The bear's exit still averages two views
that sit 41% apart, the fade at $152 and the outside view at $214. They
differ because the fade values the bear's own FY2031 NOPAT, $8.3B growing 4%
a year at a 48% mature return, 13.5x NOPAT, while the outside view applies
the peers' ten-year median of 16.7x EBIT (about 19.6x NOPAT), a multiple
earned in years when those companies grew; for a world of lost share and 4%
growth the fade is the better guide, and the method averages both rather than
choosing. This is a coherent world: Lam's revenue fell 39% in two quarters in
2023, and China was then filling the gap, which it may not do again.

**Why the bull could be right ($399.42).** SEMI and every toolmaker forecast
growth to 2028-29, AI capacity is supply-limited, and Applied says WFE
grows faster to 2030 than in the last decade. If WFE grows every year to
$253B and Applied meets its share and margin targets, FY2031 NOPAT is
$23.8B at a 38.4% operating margin (38.1% in FY2030). The bull's R&D and
SG&A follow the same 17-cent rule, and the bull reaches the $409.29 price at
about 14.7 cents, so it is $10 short of the price at 17. Its FY2030 share is
21.9%, FY2025 plus 3.6 points, more than management's target; at the target
(20.3%) the bull is $371.48 (-$27.94). Its 2029 WFE moved from +8% to +10% in
the first revision (+$7.92 on the bull, a change after the blind commit), and its
Q4 run-rate step of 4% a quarter is part of the exit-rate change (+$15.03).
Management has beaten its revenue guide eight quarters running, and margin
has risen 13 quarters in a row.

**Why we sit in between.** Every past build ended in a down year, and its
date was never known three years ahead. Applied lost share in 2024-25 and
its margin target needs the pace of the best decade. We take SEMI's two
dated years and its 300mm outlook for 2029 in full, and half of everything
management targets beyond them.

## 6. Catalysts and what would prove us wrong

| Date | Event | What it could change |
| --- | --- | --- |
| 2026-11-10 | The Affiliates Rule suspension ends unless extended | Reinstated: about $0.6B a year of China revenue at risk (the bear's charge); about -$4 a share if permanent (at the central margin and fade multiple; inference) |
| 2026-11-12 | Q4 FY2026 results and the Q1 FY2027 guide | Our Q4 forecast is $10.41B and our Q1 FY2027 guide forecast $11.20B (a 14-week quarter; the bear case implies $10.91B and the bull case $11.45B, each at the median 1.6% beat); a midpoint below $10.91B with 2027 WFE commentary under +15% points to the bear path; above $11.45B to the bull |
| No date set | SEMI's next year-end WFE forecast | 2027 growth below 10% fails the sector note's test E1; each $10B of 2031 WFE is about $9 a share |
| FY2027 | Share of WFE | Systems share below 18.3% (FY2025) with WFE growing means the share gain is not coming (-$14 if FY2030 is no higher than FY2025) |
| First down year | Margin in the fall | Gross margin below 46.0% (the sector note's test E9) means the margin gain is cyclical |
| Each 10-K | AGS revenue | Any year-on-year fall breaks the steadiest line in the model (the sector note's test E6) |

## 7. The price: what it requires, the Street through our model, and the market pass

The blind commit 788fbee fixed the first model (central $298.65). This
section was added after the price was read (the market pass, a separate step
after the analyst's report), and sections 1 to 6 were revised twice the
same day: after a model audit and an opposite-side review, then after the
model auditor's rerun. Section 8 lists every finding, what changed
and the value before and after. The scripts for this section are
`market.py` and `street_path.py`, with outputs
`market-output.txt` and `street_path.txt`; `revision.py` prints
the step from the blind model to this one.

**Price and reaction.** The last regular-session close, 2026-10-16, is
$409.29 (market data SIP daily bar; last trade at 19:59:59 UTC was
$409.38, 0.02% apart; the vendor's quote agrees). The stock fell 17.7% in the four
sessions from the 2026-10-12 close of $497.53, including 6.7% on 2026-10-13
(close $464.24), the day of the investor meeting. It is 23.4% below $534.54,
its close on 2026-08-13, the day of the Q3 report (after the close; the next
day closed at $507.18, -5.1%). All closes are market data SIP daily bars. We read
no news for any cause and do not infer one.

**What the price requires.** The central case is worth $290.17, 29% below
the price; the bull, $399.42, is 2% below it. Alone, the price needs an
exit price of $570 (22.6x FY2031 EBIT) or 2031 WFE of $373B, 21.3% a year
from 2025. The highest six-year window in the sector note's own series
reaches $272B (15.1% a year, the opposite-side advocate's reading of SEMI's history, not
re-derived here); that is the top of our WFE range in both the base and the
bull world, and the central at $272B is worth $326.90. In our simulation P is
8.0%: under 1% in the base world, under 1% in the bear world, 32% in
the bull world, which carries a quarter of the weight.

**The world where the price is right.** Put every driver at the
bull world's mode at once: 2031 WFE $255B, Systems growth 3.5% a quarter in
FY2027, opex 15 cents per added revenue dollar, an 18x exit multiple, share
drift +2.5 points, Systems gross margin 59% and AGS growth 14.4% a year. The
central model gives $411.23 for that, just above the price. Added one at a
time from the central $290.17: WFE $312.78, then $322.75, $328.62, $340.00,
$375.97, $405.04 and $411.23 (`revision-output.txt`). Each driver is inside
its range; the price needs all seven together, which is what the 8.0% prices
(a quarter of the scenarios are this world, and a third of those reach the
price).

**The Street, run through our model.** Fair value is 0.44x the
average target ($659.83). The Street's market data annual estimates, fiscal years
ending October (`data/street-estimates.json`), against ours:

| FY | 2027 | 2028 | 2029 | 2030 |
| --- | --- | --- | --- | --- |
| Street revenue, $B (analysts) | 46.8 (27) | 57.1 (24) | 62.8 (12) | 80.4 (12) |
| Ours, $B | 44.1 | 49.0 | 53.4 | 54.5 |
| Street EBIT margin implied by its net income | 35.2% | 37.3% | 40.1% | 42.3% |
| Ours (GAAP) | 35.5% | 35.5% | 35.5% | 35.3% |
| Value with Street revenue through that year, then ours, $ | 309 | 343 | 340 | 434 |

Street EBIT is implied by the Street's net income (market data `netIncomeAvg`), over
one less the tax rate (11%, 13%, 15%), less $0.3B of interest and other
income. The diluted shares that net income and EPS imply are 778M for FY2027
and 750M for FY2028 (808M for FY2029-30, a different and thinner set of
analysts), not 800M; EBIT built from EPS times 800M had overstated the
Street's FY2027 and FY2028 by 3% and 7%. The vendor's `ebitAvg` field is not used:
it gives $13.44B for FY2026 against Applied's own GAAP operating income of
about $11.0B. Street revenue goes in through Applied's FY2027 Systems growth
and then through WFE, keeping our segment margins and our opex rule. With R&D
and SG&A held at our dollars the same steps give $342, $392, $387 and $525;
solving Systems gross margin to the Street's implied EBIT as well gives $309,
$344, $343 and $503 (Systems gross margin 62% in FY2030-31). Step by step from
our $290: FY2027 +$19, FY2028 +$34, FY2029 -$3, FY2030 +$94, then $226 remain
to the $660 target.

- **FY2027 is +$19, and all of it is a higher base carried forward.** Street
  FY2027 revenue is 6% above ours and needs Systems growth of 5.1% a quarter
  against our 2%. As a one-year effect (FY2027 payouts alone, nothing carried
  into FY2028) it is worth +$0.26.
- **FY2028-29 add +$31 together.** The Street's revenue is 17% above ours in
  both years; FY2029 gives back $3 because the Street's FY2029 sits below our
  path rolled off its higher FY2028 base.
- **FY2030 is the largest single step (+$94).** The Street's FY2030 is +28%
  on FY2029 with a 42.3% margin, from 12 analysts (7 for EPS); its low
  estimate ($72.6B) is above the FY2029 high ($68.3B). At a share of 20.9%
  (our drift from the level the Street's FY2027 implies), $80.4B needs
  calendar 2030 WFE of $342B, +39% on the Street's own 2029 level of $247B,
  against our $219B. The analysts behind that year may differ from those
  before it; the Street's summary does not say. It is the biggest part of the target
  and rests on thin coverage.
- **The price sits between the Street's FY2029 and FY2030.** The Street's
  FY2027-29 revenue on our margins and exit is worth $309-$343, 16-24% below
  the price; with its margins too, $343 through FY2029. It takes a part of
  the FY2030 step, which is 12 analysts and a $342B WFE.
- **The Street's margin is above ours after FY2027.** Its implied EBIT margin
  is 0.3 point below ours in FY2027, then 1.8, 4.6 and 7.0 points above.
  Applied's non-GAAP margin leaves out acquisition charges, restructuring and
  legal settlements but not stock pay (its earnings releases), so the gap is not
  stock pay: it is the Street's operating leverage against our 17 cents of
  opex per added revenue dollar and flat Systems gross margin. The margin
  adds $0 through FY2027, $3 through FY2029 and $69 through FY2030.

**Range.** Our 10th to 90th range, $164-$403, is 65% as wide as
the Street's target spread ($530-$900), so it is not narrow against it. The
price sits near our 92nd percentile (P 8.0%). We do not widen it toward the
price.

**Alpha's view (dated 2026-10-17; `alpha ticker analyze AMAT`, saved in
`alpha-ticker.json`).** Core score 30.4 of 100, Below Average. No ordinal
rank: the rank cache is stale and data health is limited. By category,
valuation C (31st percentile), expectations C (31st), quality C (36th),
growth C (62nd), momentum C (60th). The momentum lens reads breakdown_avoid
(score 26): the close is below the 50-day ($482) and 200-day ($438)
averages, 3-month return -27.4%, RSI 29.6, against a 12-month return of
+80.7%. Valuation: P/E 35.1 against its 5-year median 21.4, richer than its
own history on all four multiples (vendor history stale).
**Why we differ.** We do not, in direction: both say avoid. Alpha avoids on
a broken trend and a rich multiple; we avoid because our cash flows to
FY2031 fall short of the price. The reasons are independent, and neither is
a veto on the other. Were the price to fall toward our $290, Alpha's momentum
read and our value would part the other way.

**Technical read (`technical.txt`; timing beside the view, never an input).**
Grade D. Stage topping (close below the rising 30-week average of $479),
structure damaged (the $411.51 swing low of 2026-09-16 broken), not extended
(-3.3 ATR from the 21-day average), relative strength 29% below its
63-session high against QQQ, market and group (SMH) both hostile. It rises
on a weekly close above $479. Earnings 2026-11-12 is 19 sessions away.

**Variant view and what settles it.** The price discounts more than the
Street's FY2027-29 revenue on our margins. Our differences are a cycle that
pauses in 2030, an operating margin held at the 35% the Q4 guide supports
where management claims 40% non-GAAP, and one point of share above FY2025.
The Q4 FY2026 release and the Q1 FY2027 guide on 2026-11-12 (after the close;
verified in earnings calendar) settle FY2027: our Q1 guide midpoint
forecast is $11.20B for a 14-week quarter, $10.91B in the bear case and
$11.45B in the bull case (each our Q1 revenue less the median guide beat of
1.6%). A midpoint above $11.45B is the bull path; below $10.91B is the bear
path.

**The Affiliates Rule date.** The 8-K of 2025-10-02 has the suspension ending
2026-11-10, which is the catalyst date above. The opposite-side review found
a 2026-09-25 report that it was extended to 2027-01-10; it is a search
snippet, not confirmed in the Federal Register, and we did not use it. If
it holds, the catalyst moves to 2027-01-10 and the risk stays about -$4 a
share if the rule is permanent (inference).

## 8. Review findings and answers

Two rounds of review read this report with the market known. The **model
auditor** is an AI reviewer that checks the model's mechanics and numbers;
the **opposite-side advocate** is an AI reviewer asked to argue against the
Avoid. Round 1: a model audit (14 findings) and an opposite-side review (15
findings), with decisions by our research lead on four of them. Round 2: the
model auditor reran every number of round 1, reproduced them, agreed that
the Avoid survives, and left ten fixes. Every answer below is fixed,
disclosed or rejected. The step from the blind model to this one is
`revision.py` (`revision-output.txt`): it rebuilds the blind
state and adds one fix at a time, so each dollar effect depends on the order
shown. A change was made only on dated evidence or on a rule that does not
depend on the price; the price moved no assumption.

| | Blind (788fbee) | First revision | Now |
| --- | --- | --- | --- |
| Central | $298.65 | $319.65 | $290.17 |
| Bear | $142.49 | $166.89 | $154.92 |
| Bull | $405.41 | $399.42 | $399.42 |
| Weighted 25/50/25 | $286.30 | $301.40 | $283.67 |
| Purchase price | $281.12 | $300.85 | $273.23 |
| P(price justified) | 8.7% | 15% | 8.0% |
| P 10th / 50th / 90th | $161 / $291 / $404 | $164 / $303 / $429 | $164 / $273 / $403 |
| Confidence | 35% | 30% | 30% |
| View | Avoid | Avoid (0.78x the price) | Avoid (0.71x the price) |

**Round 2: the bridge from $319.65 to $290.17.**

| Step | Central | Bear | Bull | Weighted |
| --- | --- | --- | --- | --- |
| First revision | 319.65 | 166.89 | 399.42 | 301.40 |
| Central FY2030 share is FY2025 + 1.0 point | 302.08 (-17.57) | 166.89 | 399.42 | 292.62 |
| Central Systems gross margin held at 55.3% | 290.17 (-11.91) | 166.89 | 399.42 | 286.66 |
| Bear: Q4 share step fades to zero by FY2031 | 290.17 | 146.57 (-20.32) | 399.42 | 281.58 |
| Bear: opex rule in every year | 290.17 | 151.89 (+5.32) | 399.42 | 282.91 |
| Bear: mature return as the central | 290.17 | 154.92 (+3.03) | 399.42 | 283.67 |

The odds change is separate from the table: the WFE top of 330 becomes 272
in the base and the bull world, the share driver is redefined around the new
central, and Systems gross margin centres on 55.3%; P is 8.0%, with a 10th,
50th and 90th percentile of $164, $273 and $403.

**Four concerns raised by our automated report check.**

- **The net move from the blind $298.65 to $290.17 (-$8.48, -2.8%).**
  The largest single change is the WFE path, +$23.95, which rests on SEMI's
  dated 300mm outlook of 2026-10-13, not on a management claim or a Street
  figure. It is offset by the opex rule (-$17.92), the share path (-$17.57) and
  the margin hold (-$11.91), each on Applied's own filings or guide.
- **The probability that the price is justified, 8.0%.** Answered by number
  in section 7: the price needs all seven drivers at the bull world's mode at
  once ($411.23), and the bull world's P is 32%, a quarter of the scenarios.
- **The Street.** Answered in section 7: the Street's revenue by year through
  our model, step by step, $19, $34, -$3 and $94 from our $290.
- **The range.** Answered in section 7: 65% as wide as the Street's spread;
  the price sits near our 92nd percentile; not widened toward the price.

**Round 2: the model auditor's ten fixes**

1. **Share: fixed.** FY2030 share is FY2025 (18.3%) + 1.0 point, 19.3%, not
   20.5%. The input is the drift after the Q4-set FY2027 level, now -0.92
   point by FY2031 (`share_gain` -0.0092). -$17.57 (the auditor: -$17.59). The
   target met (20.3%) is +$15.05.
2. **Bear: fixed.** The Q4 share step fades to zero by FY2031 (-$20.32; the
   auditor's bear $146.57 reproduces exactly). The 17-cent opex rule now
   applies to the bear's later years as well (+$5.32; see the opex fix
   below). The bear's 25% mature return charged its lost share and price a
   second time; it is now the central's 48% (+$3.03 in this order; the
   auditor's +$3.42 was on the first revision's bear). Why the bear's fade
   value and outside view differ is stated in section 5. Bear $166.89
   becomes $154.92.
3. **Margin: rule applied, claim disclosed.**
   The central margin is held at the level the latest dated guide supports,
   the Q4 FY2026 guide: 35.0% at its midpoint, 35.3% on our Q4, with Systems
   gross margin flat at 55.3%: 35.5% in FY2027, 35.2% in FY2031 (-$11.91). The
   CFO's margin bridge of 2026-10-13 (value pricing, mix, operational
   efficiency, 200-300 basis points from AI automation) has no dated action
   with a number, so management's 40% non-GAAP (39.8% GAAP) is quoted as a
   claim. The gap is 4.6 points: closing it is +$35.30, and Q3's actual 33.7%
   is -$11.10 (the auditor's -$25.76 for 33.7% was against the first
   revision's 36.9%).
4. **Opex: fixed and disclosed.** The rule is in every case, the bear's later
   years included. The Q4 opex anchor is worth +$11.67 (see the FY2027
   sequential-growth item in round 1) and is kept. 17 cents is an endpoint
   ratio; the least-squares slope is 15.8 cents (+$2.55). The bull text now
   matches its FY2030 margin of 38.1%, and the bull reaches the price at
   about 14.7 cents (section 5).
5. **The flat 2030: labelled as our assumption [I].** It is undated, and it
   moved value toward the price by +$6.85 on the first revision's central
   (+$6.03 on this one); stated in section 3 and `drivers.json`.
6. **Odds ceiling: fixed.** WFE 2031 maximum 272, the highest six-year window
   in the sector note's own series, in the base and the bull world. P is 8.0%
   (the auditor, on the first revision's model: 8.2%). The probability
   concern is answered by number in section 7.
7. **Bull 2029: disclosed.** Bull 2029 WFE moved from +8% to +10% (+$7.92 on
   the bull; the advocate's check of changes after the blind commit); its Q4
   run-rate step of 4% a quarter is part of the +$15.03 exit-rate change
   (section 5).
8. **Q1 FY2027 thresholds: tied to the cases.** Revenue for the 14-week
   quarter is $11.08B, $11.38B and $11.63B in the bear, central and bull
   case; less the median 1.6% beat, the guide midpoints are $10.91B, $11.20B
   and $11.45B (`output.txt`), replacing $10.6B, $11.15B and $11.7B in
   `record.json` and sections 6 and 7.
9. **The share count in street_path.py: fixed.** EBIT comes from market data net
   income, whose implied shares are 778M (FY2027) and 750M (FY2028), not
   800M; printed in `street_path.txt`.
10. **record.json: fixed.** The summary and numbers match this version. The
    SEMI year-end entry had a placeholder date (2026-12-31); no SEMI date is
    in the folder and the record needs a date for every catalyst, so it moves
    from the catalysts to the falsifiers and section 6 says no date is set.

**Round 1: model audit and opposite-side review (values as of the first
revision, central $319.65, superseded where round 2 says so)**

**Decisions by our research lead**

- **2029-31 WFE path: fixed (SEMI-consistent path, dip disclosed).** 2029
  +5% becomes +9.6%, 2030 -3% becomes flat, 2031 stays +4%: 2031 WFE $211.8B
  becomes $227.9B (10.4% to 11.8% a year from 2025). +$23.95. Evidence:
  SEMI's 300mm outlook of 2026-10-13, $149B in 2026 to $227B in 2029, a
  1.52x rise, the same as our 1.52x from $143.9B. The flat 2030 is our own
  dip assumption (a pause after three double-digit years; no dated source):
  no dip is +$9.13, the blind path is -$16.63.
- **Plain errors: fixed.** The street_path.py EBIT field and line 46, the
  FY2026 base, the tax credit refund, the FY2027 sequential shape and the
  53-week year are answered below. `other` is rejected (the auditor's third
  item).
- **Odds: fixed.** Ranges widened to the evidence in the folder, not to the
  price: WFE 2031 150-265 becomes 150-330 (base), bull world 200-300 becomes
  205-330, bear world 125-185 becomes 125-190; and three drivers that were not
  simulated are now: FY2027 Systems growth a quarter (0-5%), opex per added
  revenue dollar (12-44%) and the exit multiple (14.2-20x). P 8.7% becomes
  15%; 10th to 90th $161-$404 becomes $164-$429.
- **Margin, GAAP against non-GAAP: settled from the filings.** The gap is
  0.1-0.2 point in an ordinary quarter (Q2 FY2026 31.9% against 32.1%, Q3
  FY2025 30.6% against 30.7%, Q2 FY2025 30.5% against 30.7%). The gaps of 1.0
  (FY2025 29.2% against 30.2%), 3.4 (Q4 FY2025) and 3.9 points (Q1 FY2026)
  hold a $181M restructuring charge and a $253M legal settlement (releases
  2025-11-13 and 2026-02-12). The auditor was right about the ordinary gap;
  the advocate's 1.0 is a year with charges. The 40% non-GAAP target is
  about 39.8% GAAP, and our FY2031 35.2% sits 4.6 points below it. Decision:
  no margin change beyond the opex rule below.

**Model auditor, round 1**

1. **FY2027 sequential growth: fixed.** FY2027 Systems $32.11B (four times
   the $8.03B Q4 forecast) becomes $34.41B at 2% a quarter from the Q4 level,
   with R&D and SG&A also starting from the Q4 run rate: +$11.90 on the
   central. 0% a quarter is -$12.46 and 4% is +$12.81. Evidence: the Q4
   FY2026 forecast and guide ($7.9B, +12% on Q3's $7.04B), management's
   "another strong growth year" (Q3 call 2026-08-13). The auditor's +$8.5,
   +$20.2 and +$30.6 roll SEMI's growth off the higher base on the blind
   opex; ours carries the new level as a permanent share step and charges
   the opex that comes with it, so it adds less.
2. **FY2026 base on $7.9B: fixed.** Systems $26.05B becomes $26.18B ($8.03B
   Q4), AGS and Other and gross profit likewise; base share 18.7% becomes
   18.8%: +$1.80.
3. **Other at four times $0.51B: rejected.** FY2027 stays $1.6B. The CEO said
   on 2026-10-13 that the two businesses are at "around $400 million per
   quarter" and that he would not model anything near term beyond that
   (`data/calls/`); the Q4 guide of $0.51B is one quarter above it. At $2.08B
   in FY2027-28 the value is +$0.52 (the auditor's +$0.71 was on the blind
   model).
4. **A fall assumed in 2030 without a dated cause: fixed with disclosure.**
   See the research lead's decision above: -3% becomes flat, +$23.95 together
   with 2029; the flat 2030 is labelled as our assumption in the report and
   in `drivers.json`.
5. **Margin from opex: fixed.** From FY2027 R&D and SG&A rise 17 cents
   for each dollar of revenue added (Applied's FY2016-25 pass-through,
   Market data annual; 12 cents in FY2016-22, 44 cents in FY2022-25). FY2031
   operating margin 37.7% becomes 36.9%; opex 14.5% of FY2031 revenue becomes
   15.7% (a ten-year low of 16.1%; FY2027 starts at the Q4 FY2026 ratio of
   15.2%): -$17.92. The auditor's FY2031 margins of 36%, 35%, 34% and 32.1%
   through opex are -$7.40, -$15.58, -$23.76 and -$39.30 on this model; at
   44 cents the value is -$66.65. The same rule now applies to the bull, whose
   opex no longer outruns its revenue (bull FY2031 margin 41.4% becomes
   38.4%; the rule is -$32.43 on the bull).
6. **Where the fade starts: disclosed.** The fade starts at the return on
   fixed and intangible capital; the auditor's 56.7% with working capital and
   -$1.07 to -$1.64 are not re-derived here. It is our standard method
   (fade-peer-2026-10-16), so it is not changed in one report.
7. **EBIT in street_path.py: fixed.** the vendor's `ebitAvg` ($13.44B for FY2026,
   Applied's own GAAP $11.0B) is replaced by EBIT implied by the Street's
   EPS (section 7): FY2026 $11.23B, FY2027 $16.92B, FY2028 $22.76B, FY2029
   $24.89B, FY2030 $33.68B. The Street's margin now adds $0 through FY2027
   and $3 through FY2029; the FY2027 step including the Street's margin is
   +$20.34, of which the margin is +$0.05.
8. **Our standing cost-of-equity calibration: disclosed.** Without the
   -1.00 point the value is $294.93 (-$24.72); the auditor's $275.65 was on
   the blind model. It is now stated in section 3 as a calibration setting
   without direct evidence.
9. **$1.2B investment tax credit refund: fixed.** Added to the bridge from
   10-Q Note 8, undiscounted, timing not stated: +$1.50.
10. **Small bridge items: fixed and disclosed.** Tax on unrealized gains
    -$0.2B and the pension deficit -$0.146B together -$0.47 a share; debt at
    principal $6.6B against $6.544B -$0.07. The $3.0B operating cash and
    $1.6B Q4 cash kept stay as labelled assumptions; each $1B is $1.25 a
    share.
11. **Capex: disclosed.** 9M FY2026 capex was 8.3% of revenue against our
    6.5% in FY2027; a path of 8%, 7%, 6%, 5.5% and 5% is -$3.82. Not
    changed: the Singapore campus build is lumpy and revenue grows 28% in
    FY2027, and the effect is small.
12. **Tax 17% for FY2028-31: rejected.** The CFO's estimated tax rate for
    2030 is 15% (investor meeting 2026-10-13); 17% is -$4.07.
13. **Peer set: disclosed, model matches.** The outside view uses the median
    of LRCX, KLAC and ASML ten-year medians (16.7x), as the report says.
    Without ASML it is 15.4x and -$10.41.
14. **Bull mature-return text: fixed.** "FY2021-25 above 45%" becomes
    "FY2021-24 above 49%; FY2025 43.0%" in `model.py`.

**Opposite-side advocate, round 1**

1. **WFE growth equals the weakest six-year window: disclosed, ranges
   widened.** Our 2025-31 pace is 11.8% a year after the path change
   (it was 10.4%, the weakest). The median window, $252.6B in 2031, is
   +$23.41; the flip fact of $250B is +$20.95 (WFE of $258B reaches the Hold
   line, 14.1% a year). Not adopted as central: the windows are the
   advocate's reading of a sector note not in this folder, and beyond 2029
   there is no dated source. Its extremes set the new range (to $330B) and
   the bull world.
2. **The 2030 fall of 3% is undated: fixed** (see the auditor's item on the
   2030 fall).
3. **2029 +5% against SEMI's 300mm outlook: fixed.** +9.6%; the advocate's
   +10% with 2031 at $238B is +$6.90 on this model.
4. **SEMI's 2029 forecast rose 32% in six months: fixed in the odds.** Wider
   ranges (the research lead's decision above).
5. **FY2027 has 53 weeks and a 14-week Q1: fixed.** Applied's year ends on the
   last Sunday of October: FY2026 on 2026-10-25, FY2027 on 2027-10-31, so
   FY2027 has 53 weeks and Q1 FY2027 (to 2027-01-31) has 14. Systems, AGS
   and opex carry the 53rd week in FY2027 and drop it in FY2028: +$0.32. The
   Q1 FY2027 guide forecast of $10.6B (range $10.0-11.2B) implied a 5.5%
   weekly decline from Q4; it is restated to $11.15B (range $10.6-11.7B):
   our Q1 revenue of about $11.3B for 14 weeks less the median guide beat of
   1.6% (Q4 flat per week is $11.21B). The bull threshold is now $11.7B, not
   $11.2B.
6. **Bug in street_path.py line 46: fixed.** `base[k+1]` replaces `base[k]`;
   with the revised model the Street's FY2027-29 revenue on our margins is
   worth $340-$372 (the report had $375-$400 from the buggy script and the
   blind model).
7. **Street margin and the "Systems gross margin 65%": fixed** (see the
   auditor's item on EBIT in street_path.py). The 65% was an artifact of the
   Market data EBIT field; the implied Systems gross margin now peaks at 62% in
   FY2030-31.
8. **FY2027 Street step is a higher base carried forward: confirmed.** +$20
   carried, +$0.27 as a one-year effect.
9. **Margin target about 39% GAAP: rejected, settled** (the research lead's
   decision above): the target is 39.8% GAAP. `semi_gm` FY2031 60.1% is
   +$17.59; not adopted. Our 57.3% is about half of the company's own
   gross-margin pace since FY2015 (0.8 point a year, 40.9% to 48.7%) and
   management's 1 point; both rose in good years and fell in bad ones.
10. **Services: disclosed, not changed.** AGS growth of 20%, 16%, 14%, 14%
    and 14% is +$7.16. Q3 growth of 22% and "above $12B by calendar 2030"
    are management's; AGS grew 10.6% a year over FY2014-25 and the 2026 rate
    includes high utilisation. Ours is $10.4B in FY2030; +2 points a year is
    +$2.61.
11. **Share +2 points: rejected.** +$9.14. It is management's target, taken at
    half (the 2025 share fell 0.8 point).
12. **The Street's FY2030 is indefensible: confirmed** (section 7): $324B of
    calendar 2030 WFE against the Street's own $238B for 2029.
13. **Truncated simulation: fixed.** WFE base max 330 and bull max 330 (the
    advocate asked for 300 and 350); FY2027 level, opex and exit multiple are
    now drivers. P is 15% (the advocate's re-run: 14.5%); 90th percentile
    $429 (the advocate's: $431).
14. **Affiliates Rule date: disclosed** (section 7). Unconfirmed; the 8-K
    date is kept.
15. **Peers' latest five-year EV/EBIT of 20.9x: disclosed, not used.** It is
    price-derived. The reference-only lines in `output.txt` stay: the peers'
    trailing 39.0x gives $506.63 and forward 25.3x gives $391.52.

**The world where the price is right.** Seven things at once: Systems growth
2.7% a quarter, 2029 +10%, 2030 +6%, FY2030 share at FY2025 + 2 points,
Systems margin 60.1%, AGS growth 15.6% and opex at 12 cents. The advocate's
value was $404.5 on the blind model; our model gives $379.51 for the same
recipe (`revision-output.txt`). The recipe of round 2 is the bull world's
mode on all seven drivers, $411.23 (section 7).

**The flip fact.** WFE growing 14% a year to about $250B in 2031 gives $308.62
here (the advocate: $348); the Hold line needs $297B.

## 9. Sources (read 2026-10-18)

- Applied 8-K earnings releases, Q3 FY2024 to Q3 FY2026 (masked;
  `data/edgar/` and the sector note's `data/edgar/`), 10-Q for the quarter
  to 2026-07-26, 10-Ks FY2024 and FY2025 (sector note `data/edgar/`).
- 8-K 2025-10-02 (Affiliates Rule estimate) and 8-K 2026-08-27 (board
  appointment, not material), `data/edgar/`.
- Q3 FY2026 call, 2026-08-13 (sector note `data/calls/`); investor meeting
  2026-10-13 (Quartr via market data, market paragraphs removed,
  `data/calls/`).
- Market data statements for Applied (income, balance sheet, cash flow, annual and
  quarterly; segment and geographic revenue), `data/market-data/`; peers' key
  metrics, statements and estimates, `data/peers/`.
- SEMI mid-year forecast 2026-07-14 and 300mm outlook 2026-10-13, via the
  sector note `data/industry/`.
- Damodaran implied equity risk premium and the 10-year Treasury, 2026-10-01
  (our standing market inputs).
- Sector note `docs/research/sectors/semi-equipment/note.md`; our ASML report
  `docs/research/2026-10-15-asml/assumptions.md` (operating sections only).