Lam Research Is in Our Buy&Hold List
Here is one more undeservedly forgotten hero of the semiconductor era, which added nearly 50% to its market value from the beginning of the year until the first decade of July, but later reversed into a deep correction despite a continuous and notable quarter-by-quarter growth over the last five accounting periods. LRCX share price is now only about 7% exceeding its peaking levels of December 2021, still being 30% below its all-time highs of the summer 2024. Meanwhile, the Bank of America (BofA) freshly spotlighted Lam Research among its 6 key chip stocks to own for 2025 as a "flash-memory tool leader poised for capital expenditure recovery and impact resolution in China". Slower spending in domestic China previously formed a headwind for Asia-oriented chip companies. TD Cowen investment bank also called Lam Research "top pick", citing its "exposure to secular trends such as increasing memory content in storage, mobile and other applications and strong cash generation", although with a pretty moderate price target of $100.00, compared to varying around $78.5 at the moment.
A 25% to 30% resurgence in wafer fab equipment (WFE) investments over the next couple of years is forecasted by various analyst groups, as this technology has found a fast-increasing market in digital players and cameras, as well as solid-state drivers (SSD) for laptops, USB flash drives and all other devices which need large files to be frequently uploaded or replaced. Lam Research is exactly specializing in WFE. The firm reportedly commands over 30% of the capacity upgrade WFE market. Only leading-edge logic chips, which are used in artificial intelligence, quantum computing and machine learning may obtain a comparable pace of growth. Capital expenditures on necessary segments of WFE manufacturing dropped significantly in 2023 and 2024, with reinvestment supposedly falling up to 35%, but TD Cowen estimated it was going to rapidly recover up to 50% in 2025. Lam's customer support business division shows a 22% quarter-over-quarter surplus. The company's other diverse and innovative"4 Horsemen" technologies to generate more sales and to expand its part of the WFE market are GAA (Gate-All-Around), which is important for advancing transistor design, as well as Backside Power Distribution for better efficiency, Advanced Packaging solutions to overcome physical limitations and Dry Resist technology for reducing costs in lithography processes. If production chain partners want to improve yields and reduce costs, they are likely to invest in upgrading existing Lam's fabs instead of trying to build entirely new infrastructure.
Partially easing of China restrictions could be listed among factors to contribute to this kind of an optimistic view. The firm's solid financial metrics could be expected at the end of January when the time for nearest quarterly earnings will come, so that the stock has enough space and time for buying step-by-step on expectations. It could be mentioned here that Lam Research has a long history of beating consensus profit guidelines, averaging $0.63 per share above the midpoint over the last eight quarters. The appointment of Ernst & Young by Lam Research shareholders as the independent auditor may help to consolidate its corporate finances, even though its liquid assets are well exceeding short-term obligations and the company operates with a moderate level of debt. This sounds nice when combined with a $1 billion worth of shares in a quarterly buyback program. We feel that the AI agenda is going to continue driving the chip segment higher at least in the first half of 2025 before its attraction for Wall Street crowd may shift to some other side, but a broadening in the semiconductor rally could be expected later, based on still being in the shadow but slowly growing industrials. The same BofA sees global memory sales to jump by another 20% in 2025, after a nearly 80% rise this year, with core semiconductors (excluding memory) climbing by 13% on average and its whole industry sales target reaching $725 billion. Of course, China's market may potentially expose the whole segment to mid-term risks because of trade war threats and other geopolitical tensions, which may disrupt normal logistics and demand curve or create an overcapacity situation on Lam's Asian markets. Strengthening in the U.S. pressure may stimulate China for more attempts to develop its own alternatives to American-rooted manufacturing, which in turn may erode Lam's market share in the long term. So, this is a risk investors should closely watch.
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