We recently published a list of Jim Cramer is Talking About These 10 Stocks. In this article, we are going to take a look at where LAM Research (NASDAQ:LRCX) stands against other stocks Jim Cramer is talking about.
Jim Cramer in a latest program on CNBC said that the market is narrowing again as he sees gains getting concentrated in big tech stocks again amid bond movements.
“If the bond market doesn’t start behaving and calming down, and long-term interest rates don’t stop going up, we are gonna start losing the groups that led us higher for months and go back to our bad old ways with just a couple of magnificent ones.”
Jim Cramer said that this trend was more or less expected as market assumptions following the 50bps rate cut by the Federal Reserve proved to be wrong down the road.
But then that darn double cut—we saw something that hasn’t happened since 1995. We saw loan rates go higher, not lower. It was a total buzzkill, and we’re beginning to feel it with earnings.
Cramer then talked about a latest earnings report from a notable homebuilder that showed soft results, indicating a weaker consumer. Cramer then summarized his thesis again on why he sees the overall market trajectory in what he called a “suboptimal situation.”
“If interest rates don’t stop rising quickly—they can go up slowly, but this quick rise means we’ll go right back to the same old story. Only a few big tech stocks were winning, while many more were losing. In other words, we’re on the verge of what I can describe as an extremely suboptimal situation if the bond market doesn’t settle down.”
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In
Our Methodology
For this article we watched several latest programs of Jim Cramer on CNBC and picked 10 stocks he’s talking about. With each company we have mentioned its hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician operating an automated semiconductor processing machine with laser accuracy.
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.”
Overall, LRCX ranks 3rd on our list of stocks Jim Cramer is talking about. While we acknowledge the potential of LRCX, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LRCX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
