Applied Materials Citi Global TMT Conference

Sure. Nice to see everyone. Thanks for hosting us at the conference, Atif. The demand confidence that we have, we have a lot of information coming in from our customers, especially the DRAM and leading logic companies. We have a rolling eight-quarter forecast we get from our largest customers, which has been increasing all year, and we attribute that to the AI, artificial intelligence, systems demand that's happening across the market. So we've got that information coming in directly from our customers. That's been rising. That gives us some confidence. When we look beyond our customers to their customers, cloud service providers as an example, we see the CapEx forecast rising all year from the cloud service providers. I think it's over $700 billion this year for the U.S. companies, almost $1 trillion for the global companies. Those numbers continue to go up.

When we look at the underlying trend dynamics of AI itself, we see token demand rising, we see the economics of token demand and the economics of the cloud service providers to be positive. This underlying trend seems very strong. When we think about it from a microeconomic perspective, what we see inside Applied Materials, we're of course using AI inside the company to accelerate software development, to accelerate product development, to accelerate schedules for our products. Our own utilization is increasing significantly, which gives us a lot of confidence that this trend, the AI data center investment trend, is investable and is durable from an economic value perspective.

The last thing on this is we've seen across the whole ecosystem, we've seen utilizations increasing, almost every different end market, including our mature technology nodes, which just says that the semi devices themselves are increasing in volume, which also gives us confidence. So really all the indicators, all the arrows point up. Our customers are investing, our customers' customers are investing and highly profitable, and we're investing. So we have a lot of confidence in the future.

Well, for sure we're monitoring actual system designs, as an example. So we do look at the GPU content, the accelerator content, CPU content, memory content on systems. We're trying to understand what the shape of the demand by DRAM, by leading-edge logic, and by advanced packaging will be for our forward-looking forecasts. So that's probably at a deeper level than we've seen before. The other thing, of course, that we track is all the factories announced across the world. So we have a fab tracker. It's well over 100 factories that we're tracking at this point. There were more than 10 added in each of the last two quarters. That's another strong leading indicator for us, is how much clean room is being put in place. We've said over the medium term, this ramp, there's more demand than there is supply.

We've said in the medium term it's gated by clean room, and we're looking closely at the investments customers are making in clean room, when those factories come on, and that gives us confidence also. Then the triangulation of that system architecture and the amount of capacity that's being put in place across those different device types, we work hard on that.

If we start with DRAM and foundry logic, the end market that we would pair with that very closely is advanced packaging. The advanced packaging, that was a $1.4 billion business for Applied Materials last year. We've said this year it's growing more than 70%. We expect that advanced packaging will grow apace with leading-edge logic and DRAM going forward. It goes back to what I just described with the system-level architecture for AI data centers. You have a lot of leading-edge components, CPUs, GPUs, and accelerators. You have stacks of DRAM and HBM on those systems, and they all have to be connected on a substrate with high-performance interconnects. That pulls the advanced packaging capability, along with the demand for these systems. So we think that's a very strong grower.

We put those three together, and Applied has the number one process equipment position in each of those end markets. The other one that's a little bit different than in the past year is what we call ICAPS, our ICAPS market, the mature process technologies. ICAPS is IoT, communications, auto, power, sensors, those end markets. That's been a slow market for the last couple of years, as a lot of capacity had been put in place in China. We've said the world has to digest that capacity and get utilizations back up. Well, now we see utilizations coming up. We actually expect some moderate growth in ICAPS this year, in 2026. Next year we think will be a more normal growth year for ICAPS.

Normal, meaning the end market, the devices themselves grow at mid to high single digits, and we expect the equipment will eventually track that as we normalize from a utilization perspective. That is probably a change. If we have our ICAPS business working well along with DRAM leading logic and advanced packaging, then we can get the strong results that we are expecting. On NAND, I will just add a comment on NAND. The bit demand for NAND is very strong, so we say in the probably high 20% range. The issue is that the additional layers that are being added in the NAND process technology is so productive from adding bits per square centimeter on the wafer, that you actually need fewer wafers to complete all of the demand or to make all of the demand.

When you do that, basically what you have is an upgrade cycle on the NAND side. So you have fewer new factories, you do not have more wafer starts, you have a lot of upgrades. What that does from an equipment perspective is it makes that market smaller, and we expect that to continue for at least the next few years.