Lam Research’s LRCX shares have lost 22% in the past three months compared with the industry and the broader technology sector’s 17.8% and 0.5% declines, respectively. This has left investors questioning whether it is the time to buy the dip.
This decline is not an isolated incident but part of a broader market sell-off triggered by macroeconomic challenges that have been taking a toll on the broader technology sector. Apart from LRCX’s drop, other semiconductor companies encountered weaknesses. ASML Holdings ASML has fallen 18.5% and KLA Corporation KLAC has seen a 5.5% decline in the same period. This kind of broad-based retreat highlights just how vulnerable the tech sector is to macroeconomic shifts.
Three-Month Price Performance
Image Source: Zacks Investment Research
What Ails LRCX Stock?
Growing concerns over the Federal Reserve's interest rate policies and fears of a looming U.S. recession do not bode well for Lam Research.
Escalating tensions between the United States and China 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 the United States tightens restrictions on China, Beijing has intensified its push for self-sufficiency in critical industries. The recent directive to phase out foreign chips from key telecom networks by 2027 underscores Beijing's accelerating efforts to reduce the reliance on Western technology.
This shift poses a serious threat to LRCX, as it faces potential market restrictions.
AI Boom Bodes Well for LRCX
Lam Research stands to benefit from the ongoing recovery in the semiconductor industry. Improving memory spending on the back of the growing proliferation of AI and machine learning, as well as Generative AI, is a tailwind for the company.
Increasing transformative use cases of AI in both consumer and enterprise markets require significant investment in semiconductor manufacturing capacity to address the rising demand for advanced compute, memory and storage. Lam Research is well-positioned to capitalize on this on the back of its strength in wafer fabrication equipment.
AI's impacts on storage represent a substantial growth opportunity for the company’s NAND business as advanced AI applications need faster, more power-efficient and higher-density NAND storage.
Innovation Drive Boosts LRCX’s Long-Term Prospects
Lam Research’s 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.
The company’s growing investments in expanding semiconductor fabrication capabilities, research and development activities, and Semiverse solutions are noteworthy.
Lam Research’s strong customer-centric lab investments in Korea, Taiwan and the United States to accelerate wins in both DRAM and foundry/logic advanced packaging are positives.
With Semiverse solutions’ digital twin capabilities, Lam Research optimizes multi-dimensional etch and deposition process recipes faster, and reduces the time and cost of technology development.
LRCX has also accelerated innovation in NAND high aspect ratio memory hole etch production with Semiverse simulation tools.
In deposition, the company is leading the transition from tungsten to molybdenum to improve device access time and reduce stack height per storage cell.
Lam Research leverages a high aspect ratio cryogenic etch to boost the productivity of memory hole formation. Its approach to 1,000 cryogenic etch chambers in its high-volume manufacturing installed base is a plus.
The company’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.
Lam Research’s tools also enable foundry logic inflections, on the back of which it is gaining strong customer momentum.
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 $17.31 billion, indicating year-over-year growth of 16.1%.
LRCX Stock Offers Attractive Valuation
The recent sell-off has brought Lam Research’s forward 12-month price-to-earnings ratio down to 22.03X compared with the industry’s average of 24.73X. Such a valuation suggests that the market may be undervaluing LRCX’s long-term potential.
Image Source: Zacks Investment Research
LRCX’s Declining Earnings Estimate Trend
The Zacks Consensus Estimate for LRCX’s fiscal 2025 earnings stands at $35.20 per share, indicating year-over-year growth of 17.6%.
However, headwinds surrounding the company’s prospects are making investors bearish about the stock. This is evident from the downward revision in the EPS estimate, which has moved 0.1% south over the past 60 days.
Image Source: Zacks Investment Research
Conclusion
Lam Research’s strong positioning in the semiconductor industry, technology innovation drive and attractive valuation present a compelling opportunity.
However, downward estimate revision, macro headwinds 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.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
KLA Corporation (KLAC) : Free Stock Analysis Report
ASML Holding N.V. (ASML) : Free Stock Analysis Report
Lam Research Corporation (LRCX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
