Jim Cramer is Talking About These 10 Stocks

3. LAM Research (NASDAQ:LRCX)

Number of Hedge Fund Investors: 84

Answering a question about LAM Research (NASDAQ:LRCX) in a latest program on CNBC, Jim Cramer said:

“I like it very much. Lam Research should not have gone down today. I think it’s doing extraordinarily well and is not linked with ASML. They’ve already explained their level of Chinese exposure and mentioned they had to reduce it. So, the answer is I would buy.”

Lam Research Corporation (NASDAQ:LRCX) is one of the largest providers of etching equipment for the semiconductor industry. Etching refers to any technology that will selectively remove material from a thin film on a substrate.

China-related concerns have weighed on the stock but the bulls believe that’s an overreaction and the stock has secular growth catalysts, especially due to AI.

As the third-largest semiconductor equipment supplier globally, LAM Research (NASDAQ:LRCX) dominates the etching process. Over the past decade, LAM Research (NASDAQ:LRCX)’s market share has averaged between 45% and 55%. The semiconductor equipment market has consolidated among a few major players, creating an oligopoly. Similar to how ASML dominates lithography, AMAT and Tokyo Electron control deposition, and KLAC leads in process control, LAM Research (NASDAQ:LRCX) benefits from high switching costs, large R&D investments, and experience-driven improvements. These factors contribute to its strong EBIT margins and return on capital.

LAM Research (NASDAQ:LRCX)’s largest customers are memory manufacturers, who have increased their use of Memory Wafer Fabrication Equipment (WFE). From 2010 to 2023, memory WFE consumption accounted for 64% of total WFE, up from 46% during 2001-2009. Additionally, as semiconductor designs have evolved from 2D to 3D, more etching steps are required in the manufacturing process, further driving demand for LAM Research (NASDAQ:LRCX)’s equipment.

Artisan Select Equity Fund stated the following regarding Lam Research Corporation (NASDAQ:LRCX) in its Q2 2024 investor letter:

“The top contributors to performance for the quarter were Alphabet, Lam Research Corporation (NASDAQ:LRCX) and Elevance. Lam Research shares rose 10% during the quarter and are up 67% over the past year, primarily due to optimism around the pending investment cycle in semiconductor capital expenditures. Lam is one of the largest equipment manufacturers used to make semiconductor chips. This equipment, commonly referred to as WFE (wafer fabrication equipment), is expected to experience significant growth due to a combination of a cyclical rebound in memory chips and growing demand for new AI-related chips. Lam’s product portfolio is particularly well positioned to benefit from both trends and should grow even faster than the overall market. Its shares now trade at ~30X prior peak earnings, which suggests this dynamic is well understood by the market and is mostly priced in.”