We came across a bullish thesis on Lam Research Corporation (LRCX) on Long-Term Pick’s Substack by Dan. In this article, we will summarize the bulls’ thesis on LRCX. Lam Research Corporation (LRCX)’s share was trading at $75.06 as of Jan 14th. LRCX’s trailing and forward P/E were 24.29 and 20.33 respectively according to Yahoo Finance.
A one of a kind semiconductor process equipment machine with various parts and components.
Lam Research (LRCX) delivered a robust performance in the September quarter, with revenue rising to $4.17 billion, an 8% increase from the prior quarter. The company surpassed expectations across key financial metrics, including a gross margin of 48.2% and an operating margin of 30.9%, both exceeding guidance ranges. Free cash flow was a standout at $1.46 billion, accounting for 35% of revenue, while deferred revenue rose significantly by $495 million to $2.05 billion, showcasing strong future demand. The Customer Support Business Group contributed $1.8 billion, growing 4% sequentially, while China, though contributing 37% of revenue, saw its share decline slightly from 39% in the prior quarter.
Lam demonstrated operational efficiency with inventory turns improving to 2.1 times and capital expenditures limited to $111 million. The company allocated approximately $1 billion to share repurchases, returning significant value to shareholders alongside $261 million in dividends. With cash and equivalents totaling $6.1 billion, Lam remains well-positioned to navigate industry challenges and capitalize on emerging opportunities. Headcount increased modestly to 17,700 employees, reflecting strategic investments in talent to support growth initiatives.
Lam’s momentum is fueled by advancements in NAND technology, expected to drive spending recovery and bolster its leadership in memory solutions. Advanced packaging technologies, particularly SABRE 3D, are experiencing rapid adoption, with revenue more than doubling this year. Additionally, the company is benefiting from robust demand for productivity-enhancing solutions and equipment intelligence services, indicating its strong alignment with evolving customer needs.
However, challenges remain, particularly in the domestic China market, where wafer fabrication equipment (WFE) spending is projected to decline in the second half of the year, creating headwinds for Lam’s revenue. Gross margins have been slightly pressured by customer mix changes and increased incentive compensation, while operating expenses rose due to heightened program spending. Furthermore, the NAND segment continues to face a prolonged downcycle, with recovery anticipated only in 2025, and customer mix dynamics could weigh on gross margins in the near term.
Despite these obstacles, Lam’s strategic positioning, strong financial execution, and focus on innovation offer a compelling investment case. The estimated base-case fair value price of $102.71 for the stock reflects its strong fundamentals and growth potential. With consistent revenue growth, initiatives to capitalize on technology upgrades, and rising demand for advanced solutions, Lam presents a solid opportunity for investors, making it an attractive prospect in the semiconductor equipment sector.
Lam Research Corporation (LRCX) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 58 hedge fund portfolios held LRCX at the end of the third quarter which was 84 in the previous quarter. While we acknowledge the risk and potential of LRCX as an investment, our conviction lies in the belief that some 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 was originally published at Insider Monkey.