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%.