diff --git a/Gems/Atom/RPI/Code/Include/Atom/RPI.Edit/Material/MaterialSourceData.h b/Gems/Atom/RPI/Code/Include/Atom/RPI.Edit/Material/MaterialSourceData.h
index 9557d51849..a8bf790ad8 100644
--- a/Gems/Atom/RPI/Code/Include/Atom/RPI.Edit/Material/MaterialSourceData.h
+++ b/Gems/Atom/RPI/Code/Include/Atom/RPI.Edit/Material/MaterialSourceData.h
@@ -64,10 +64,16 @@ namespace AZ
 
             PropertyGroupMap m_properties;
 
+            enum class ApplyVersionUpdatesResult
+            {
+                Failed,
+                NoUpdates,
+                UpdatesApplied
+            };
+
             //! Checks the material type version and potentially applies a series of property changes (most common are simple property renames)
             //! based on the MaterialTypeAsset's version update procedure.
-            //! @return true if any changes were applied
-            bool ApplyVersionUpdates();
+            ApplyVersionUpdatesResult ApplyVersionUpdates(AZStd::string_view materialSourceFilePath);
 
             //! Creates a MaterialAsset from the MaterialSourceData content.
             //! @param assetId ID for the MaterialAsset
diff --git a/Gems/Atom/RPI/Code/Source/RPI.Builders/Material/MaterialBuilder.cpp b/Gems/Atom/RPI/Code/Source/RPI.Builders/Material/MaterialBuilder.cpp
index 0680c5c428..02fd11bdff 100644
--- a/Gems/Atom/RPI/Code/Source/RPI.Builders/Material/MaterialBuilder.cpp
+++ b/Gems/Atom/RPI/Code/Source/RPI.Builders/Material/MaterialBuilder.cpp
@@ -287,7 +287,7 @@ namespace AZ
                 return {};
             }
 
-            if (!material.GetValue().ApplyVersionUpdates())
+            if (MaterialSourceData::ApplyVersionUpdatesResult::Failed == material.GetValue().ApplyVersionUpdates(materialSourceFilePath))
             {
                 return {};
             }
diff --git a/Gems/Atom/RPI/Code/Source/RPI.Edit/Material/MaterialSourceData.cpp b/Gems/Atom/RPI/Code/Source/RPI.Edit/Material/MaterialSourceData.cpp
index c3a63fa883..9d44963942 100644
--- a/Gems/Atom/RPI/Code/Source/RPI.Edit/Material/MaterialSourceData.cpp
+++ b/Gems/Atom/RPI/Code/Source/RPI.Edit/Material/MaterialSourceData.cpp
@@ -73,19 +73,20 @@ namespace AZ
             }
         }
         
-        bool MaterialSourceData::ApplyVersionUpdates()
+        MaterialSourceData::ApplyVersionUpdatesResult MaterialSourceData::ApplyVersionUpdates(AZStd::string_view materialSourceFilePath)
         {
-            auto materialTypeSourceDataOutcome = MaterialUtils::LoadMaterialTypeSourceData(m_materialType);
+            AZStd::string materialTypeFullPath = AssetUtils::ResolvePathReference(materialSourceFilePath, m_materialType);
+            auto materialTypeSourceDataOutcome = MaterialUtils::LoadMaterialTypeSourceData(materialTypeFullPath);
             if (!materialTypeSourceDataOutcome.IsSuccess())
             {
-                return false;
+                return ApplyVersionUpdatesResult::Failed;
             }
             
             MaterialTypeSourceData materialTypeSourceData = materialTypeSourceDataOutcome.TakeValue();
 
             if (m_materialTypeVersion == materialTypeSourceData.m_version)
             {
-                return false;
+                return ApplyVersionUpdatesResult::NoUpdates;
             }
 
             bool changesWereApplied = false;
@@ -125,7 +126,7 @@ namespace AZ
 
             m_materialTypeVersion = materialTypeSourceData.m_version;
             
-            return true;
+            return changesWereApplied ? ApplyVersionUpdatesResult::UpdatesApplied : ApplyVersionUpdatesResult::NoUpdates;
         }
 
         Outcome<Data::Asset<MaterialAsset> > MaterialSourceData::CreateMaterialAsset(Data::AssetId assetId, AZStd::string_view materialSourceFilePath, bool elevateWarnings, bool includeMaterialPropertyNames) const