Key Points
Applied Materials maintains a dominant position in providing the essential equipment and materials engineering needed for chip manufacturing.
Broadcom offers a diversified revenue stream through its high-margin infrastructure software and specialized artificial intelligence networking chips.
Should you invest in the machines that build the chips or the company that designs them? Choosing between Applied Materials (NASDAQ:AMAT) and Broadcom (NASDAQ:AVGO) depends on your specific goals for 2026.
Applied Materials provides the heavy-duty equipment required to manufacture modern semiconductors, while Broadcom focuses on designing chips and enterprise software. Both companies are essential to global technology infrastructure, but they offer different paths to growth. This comparison evaluates their financials and risks to help you decide which stock is a better buy.
The case for Applied Materials
In its latest annual report, filed for the fiscal year ended in late 2025, Applied Materials described its leadership in materials engineering for the semiconductor industry. The company provides the essential equipment and software used by major manufacturers like Taiwan Semiconductor Manufacturing Company (NYSE:TSM) to build advanced chips. Customer concentration like this adds a layer of risk to the business, as two primary customers accounted for approximately 19% and 15% of its fiscal 2025 net revenue.
In FY 2025, revenue reached nearly $28.4 billion, indicating a growth rate of roughly 4.4% compared to the previous year. The company reported net income of approximately $7.0 billion for the same period. While revenue grew, net income slightly trailed the $7.2 billion reported in the prior fiscal year, reflecting slightly tighter net margins.
As of its October 2025 balance sheet, the debt-to-equity ratio was roughly 0.3x. This ratio measures total debt against shareholder equity, helping you understand how the company funds its operations. The current ratio, which measures the ability to cover short-term bills with current assets, was close to 2.6x. Free cash flow for the year was nearly $5.7 billion, representing the cash remaining after the business paid for its daily operations and equipment investments.
The case for Broadcom
In its latest annual report, Broadcom highlighted its evolution into a diversified infrastructure giant. The company is a key player among semiconductor stocks, designing chips for networking and wireless communication while expanding its software footprint. Major commercial developments include a massive chip commitment with Apple (NASDAQ:AAPL) and the integration of VMware to serve enterprise clients.
In FY 2025, revenue reached nearly $63.9 billion, representing a significant increase of approximately 23.9% over the previous year. Net income for the period was roughly $23.1 billion, a sharp rise from the $5.9 billion reported in FY 2024. This growth was largely driven by the full-year inclusion of software acquisitions and robust demand for artificial intelligence networking components.
As of its November 2025 balance sheet, the debt-to-equity ratio was approximately 0.8x. The current ratio was nearly 1.7x, suggesting a healthy balance between liquid assets and upcoming liabilities. Free cash flow for the fiscal year was close to $26.9 billion. Note that stock-based compensation represented roughly 27.5% of operating cash flow, which inflates reported cash generation since SBC is a non-cash expense added back in the cash flow statement.
Risk profile comparison
Applied Materials faces significant risks from international export controls, particularly regarding technology sales to China. These regulations can disrupt supply chains and limit access to one of its largest markets. Furthermore, the company is sensitive to the capital expenditure cycles of a small number of customers, making its revenue potentially volatile when those manufacturers reduce spending.
Broadcom relies heavily on a limited group of distributors and end customers, with five large buyers generating nearly 40% of its total revenue. The successful integration of large acquisitions like VMware is critical to its strategy, but it carries risks of legal costs and management distraction. The company also faces active antitrust scrutiny from regulators in the European Union regarding its software licensing practices.
Valuation comparison
Broadcom appears more attractively valued based on its lower multiple of future earnings estimates, while Applied Materials trades at a lower multiple of its total sales.
| Metric | Applied Materials | Broadcom |
|---|
| Forward P/E | 36.1x | 29.8x |
| P/S ratio | 11.9x | 18.6x |
Valuation metrics sourced from Financial Modeling Prep (FMP) and may differ from other data providers.
Which stock would I buy in 2026?
I'd go with Broadcom. Its custom AI accelerator business has become one of the most sought-after partnerships in the semiconductor industry, with supply commitments already secured to double AI revenue again next year. A customer roster that includes Google, Meta, OpenAI, and Anthropic is about as strong an endorsement as the AI industry offers, and free cash flow continues to expand alongside revenue.
Applied Materials is a well-run business with broad exposure across chip manufacturing equipment, and AI-driven demand for advanced semiconductors is pulling its orders forward. For investors who want diversified exposure to the chip manufacturing build-out without betting on any single end market, it is a solid choice.
But Applied Materials operates in a competitive landscape where customers have alternatives. Broadcom's hyperscaler relationships are deeper and harder to replicate, since once a major cloud company has designed its custom AI chip around Broadcom's architecture, the switching costs are enormous.
While most equipment companies win business one order at a time, Broadcom gets designed into the chip itself, which means the relationship only deepens as the customer scales. For a long-term investor, that compounding dynamic is very enticing.
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Sara Appino has positions in Apple and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Applied Materials, Broadcom, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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