Lam Research Corporation LRCX has seen its stock plunge 16% in the past three months. This drop compares unfavorably with the industry’s fall of 9.2%, the Zacks Computer and Technology sector’s growth of 5.8% and the S&P 500’s rally of 7.1%. The recent fall has put investors at a crossroads, raising the question: is it time to buy, hold or sell?
The LRCX stock, a popular name in the semiconductor industry, presents a high-risk but potentially high-reward scenario. While the company faces significant challenges due to market volatility, high inflation and geo-political tensions, its prospects, benefiting from improving memory spending, offer hope.
Investors must weigh Lam Research's long-term potential against short-term volatility.
Three-Month Price Performance
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Factors Triggering LRCX Stock’s Sell-Off
Macroeconomic challenges have contributed to LRCX's recent downturn. The broader market has been jittery due to concerns over the Federal Reserve's interest rate policies and fears of a looming U.S. recession.
The geo-political war between the United States and China has been a headwind for the company. Escalating tensions between the two countries have been detrimental to the semiconductor industry’s prospects. U.S. restrictions on high-tech exports to China, particularly advanced AI chips, have been a major negative for chip providers.
As these restrictions are getting tightened, Beijing has intensified its push for self-sufficiency in critical industries. China’s strategy to replace chips made in the United States with domestic alternatives does not bode well.
Sluggish global spending on mature nodes is another negative.
LRCX Trades Below Key Moving Average
Adding to investors’ concerns, Lam Research’s shares have dipped below their 50-day moving average, a technical indicator often seen as a bearish signal. This movement suggests the continuation of the downward trend, at least in the short term.
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Long-Term Prospects Remain Bright for Lam Research
LRCX’s strong positioning in the semiconductor industry, which is witnessing a solid rebound this year, is expected to drive its long-term prospects. Its leading position in the wafer fabrication equipment domain; strength in deposition and etch; core competencies in areas such as nanoscale applications enablement, chemistry, plasma and fluidics; and advanced systems engineering are major positives.
Improving wafer fab equipment (WFE) spending is a positive. Growing memory spending on the back of the increasing proliferation of AI and machine learning, as well as Generative AI, is a tailwind for Lam Research.
AI's impacts on storage represent a strong growth opportunity for the company’s NAND business as advanced AI applications need faster, more power-efficient and higher-density NAND storage.
For 2024, WFE is expected to be in the mid-$90-billion range. Foundry/logic, DRAM and NAND investments are expected to be higher year over year. Solid demand related to high-bandwidth memory ramp is a plus.
To capitalize on this immense growth opportunity, LRCX is making strong investments in expanding its semiconductor fabrication capabilities.
Lam Research’s substantial customer-centric lab investments in Korea, Taiwan and the United States to accelerate wins in both DRAM and foundry/logic advanced packaging remain noteworthy.
Portfolio Strength Acts as Key Catalyst for LRCX
Growing etch and deposition intensity, owing to increasing technology inflections in 3D architectures, is a major positive. The company is gaining solid customer momentum on the back of its robust etch technology.
LRCX recently announced its third generation of cryogenic etch technology, namely Lam Cryo 3.0, which delivers industry-leading control of the NAND memory channel hole profile. It also addresses the need for more sustainable solutions by delivering a 40% reduction in energy consumption per wafer and a 90% reduction in greenhouse gas emissions per wafer from non-cryogenic etchers.
The company’s advancing deposition technology to support increased bit density and lower cost through multi-tier stacking is a plus. Its PECVD-based pure carbon and gap-fill process provides an attractive alternative material.
Lam Research’s SABRE 3D and Syndion tools, which feature strong plating and etch capabilities, and deliver industry-leading throughput and productivity, are ideal for AI servers using high bandwidth memory.
Its Semiverse solutions are boosting its prospects in the semiconductor industry further. The digital twin capabilities of Semiverse enable the company to optimize multi-dimensional etch and deposition process recipes faster. With these solutions, LRCX has accelerated innovation in NAND high-aspect-ratio memory hole etch production.
LRCX Stock Offers Attractive Valuation
The recent sell-off has brought Lam Research’s forward 12-month price-to-earnings ratio down to 21.92X, which is lower than the industry’s average of 25.45X. Such a valuation suggests that the market may be undervaluing LRCX’s long-term potential.
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Impressive Long-Term Projections for Lam Research
The company’s strong portfolio, compelling technology and expanding fab facilities are expected to drive its long-term prospects.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $17.14 billion, indicating year-over-year growth of 15.5%.
The consensus mark for LRCX’s fiscal 2025 earnings stands at $35.25 per share, indicating year-over-year growth of 18.8%.
The current macroeconomic challenges are concerning for the company.
In the booming AI era, the company faces stiff competition from peers like Applied Materials AMAT and KLA Corporation KLAC, which do not bode well for its market position.
All these are turning investors bearish about the LRCX stock, which is reflected in the downward revision of its earnings estimates.
The estimate has moved 0.1% south over the past 30 days.
Conclusion
Lam Research’s solid long-term prospects in the semiconductor industry, which is recovering rapidly, present a compelling opportunity. Impressive long-term projections and attractive valuation are positives.
Downward estimate revision, technical indicators, rising competition and geo-political tensions do not bode well. Hence, it may be wise to wait for a more favorable entry point in the stock. Investors who already own the stock should keep an eye on the ongoing advancements in Lam Research’s long-term rewards.
Currently, LRCX carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
