Applied Materials (AMAT) Q2 2026: $670M Paper Gain Drives 33% EPS Jump
Applied Materials' operating business did accelerate this quarter — but nowhere near as much as the headline suggests. Diluted EPS of $3.51 was up 33.5% and net income rose 31.3% to $2.81 billion, yet operating income grew a far more modest 16.3% to $2.52 billion; the gap is almost entirely a $550 million swing in interest and other income, driven by unrealized mark-to-market gains on equity investments the company has not sold. The genuinely encouraging number is the operating margin of 31.9%, roughly 2.5 points above Applied's five-year average of 29.4% and the strongest showing in several years. The tension worth watching is that while accounting profit surged, free cash flow for the first six months actually fell 22% as capital expenditure jumped 44%.
1. Consolidated Balance Sheet
1-1. Key asset movements
Comparisons are against the October 26, 2025 fiscal year-end, since Applied's fiscal year closes on the last Sunday in October.
| Item | Oct 26, 2025 ($M) | Apr 26, 2026 ($M) | Change % |
|---|---|---|---|
| Cash and cash equivalents | 7,241 | 6,301 | −13.0% |
| Accounts receivable | 5,185 | 6,372 | +22.9% |
| Inventories | 5,915 | 6,343 | +7.2% |
| Property, plant and equipment, net | 4,610 | 5,255 | +14.0% |
| Goodwill | 3,707 | 3,824 | +3.2% |
| Total assets | 36,299 | 40,286 | +11.0% |
The receivables build is the line that demands scrutiny. Accounts receivable rose 22.9% in six months against six-month revenue growth of just 4.6% — a mismatch that normally signals collection strain. On closer inspection it is less alarming than it appears: days sales outstanding on the quarter actually improved to 73.3 days from 79.3 days a year earlier, meaning the October base was seasonally depressed rather than the April figure being inflated. Inventory tells a similar story of controlled expansion, at 145.7 days versus 142.4 days a year ago, though work-in-process specifically climbed to $1,109 million from $914 million, consistent with a company building ahead of shipments rather than accumulating unsold stock.
