Company Reports

Lam Research is one of the largest providers of wafer fabrication equipment for semiconductors, and we believe its strong portfolio, particularly for memory chip production, should enable it to maintain and increase its large market share. In our view, Lam will benefit from increasing chip complexity over the long term, including progress toward higher memory chip density and high-bandwidth memory. We expect Lam to increase sales in the midsingle digits over the course of market cycles and over the long term.

We have raised our fair value estimate for wide-moat Lam Research to $830 from $680 after raising our long-term growth estimates for the firm. We believe Lam will benefit from strong semiconductor investment over the next three years. After a significant downturn for memory equipment in calendar 2023, we expect a multiyear rebound for both NAND and DRAM spending, supported by high-bandwidth memory demand for artificial intelligence. We also expect strong medium-term growth for Lam’s nonmemory equipment, supported by rising chip complexity and expanding supply. Lam’s June quarter results and September quarter guidance were positive and aligned with our updated forecast. We see Lam as well-positioned in memory and logic chipmaking customers, allowing it to benefit from secular growth trends like AI. We continue to see shares as overvalued but believe long-term investors can wait for a better entry point for a high-quality stock.

Lam Research is one of the largest providers in the world of wafer fabrication equipment for semiconductors, and we believe its strong portfolio, particularly for memory chip production, should enable it to maintain and increase its large market share. In our view, Lam will benefit from increasing chip complexity over the long term, including progress toward higher memory chip density and high-bandwidth memory. We expect Lam to increase sales in the midsingle digits over the course of market cycles and over the long term.

We modestly raise our fair value estimate for shares of wide-moat Lam Research to $680 per share from $660, due to a higher forecast for Lam’s sales of equipment into memory chipmakers in the medium term. Lam’s March-quarter results met our expectations, and its June-quarter guidance met our above-consensus estimates. We continue to expect strong growth from rebounding memory markets and leading-edge logic chip equipment in calendar 2024. Lam’s sales into China held up better than we expected. However, we continue to expect these to decline over coming quarters as customers digest big orders from the past year. We still view shares as overvalued. While we expect strong growth for Lam over the next two years, we believe longer-term results will remain cyclical.

Lam Research is one of the largest providers in the world of wafer fabrication equipment for semiconductors, and we believe its strong portfolio, particularly for memory chip production, should enable it to maintain and increase its large market share. In our view, Lam will benefit from increasing chip complexity over the long term, including progress toward higher memory chip density and high-bandwidth memory. We expect Lam to increase sales in the midsingle digits over the course of market cycles and over the long term.

We maintain our $660 fair value estimate for shares of wide-moat Lam Research after it reported results toward the high end of management guidance in the December quarter. Lam’s results continue to reflect an ongoing cyclical recovery in chip equipment spending, particularly for memory chipmakers to which Lam is more heavily exposed. After Lam saw a more than 20% sales decline in calendar 2023, we expect a double-digit growth year for the firm in calendar 2024. We like Lam’s exposure to steep recoveries in memory chip spending but continue to see shares as overvalued. We believe shares have skyrocketed over the past couple of quarters over exuberance for a memory chip recovery and have now far exceeded our expectations for Lam’s business fundamentals in the future. We would encourage investors to wait for a better entry point on the stock.

Lam Research is one of the largest providers in the world of wafer fabrication equipment for semiconductors, and we believe its strong portfolio, particularly for memory chip production, should enable it to maintain and increase its large market share. In our view, Lam will benefit from increasing chip complexity over the long term, including progress toward higher memory chip density and high-bandwidth memory. We expect Lam to increase sales in the midsingle digits over the course of market cycles and over the long term.

We raise our fair value estimate for wide-moat Lam Research to $660 per share, from $620, behind slightly raised margin assumptions over the next five years. We continue to expect a top-line decline in fiscal 2024 as chipmakers, particularly in memory, reduce their capital expenditures in response to softer demand. Nevertheless, we are focused on long-term trends toward higher chip complexity, including high-bandwidth memory, gate all-around transistors, and advanced packaging that we believe will fuel durable growth. We see shares as slightly undervalued.

Lam Research is one of the largest providers in the world of wafer fabrication equipment for semiconductors, and we believe its strong portfolio, particularly for memory chip production, should enable it to maintain and increase its large market share. In our view, Lam will benefit from increasing chip complexity over the long term, including progress toward higher memory chip density and high-bandwidth memory. We expect Lam to increase sales in the midsingle digits over the course of market cycles and over the long term.

We maintain our $620 fair value estimate for shares of wide-moat Lam Research after it reported fiscal first-quarter results largely in line with our expectations. Lam posted a good quarter, in our view, considering the ongoing hefty headwinds in the memory chip markets that have weighed on sales. It raised its wafer fab equipment, or WFE, industry outlook for calendar 2023, and management said recently heightened U.S. export restrictions to China shouldn’t have an incremental impact. We continue to see Lam as a dominant force in etch and deposition for chipmaking and believe it is set to benefit from secular trends toward denser and more complex chips over the long term. Shares fell about 5% after the release, in our view due to continued weakness in NAND memory. We see shares as fairly valued.

Lam Research is a major vendor of semiconductor fabrication tools. Specifically, it is the market share leader in dry etch, a critical step in the chipmaking process where material is selectively removed. We believe Lam has a wide economic moat as a result of cost advantages and intangible assets related to equipment design. Lam's leadership position creates scale advantages that fuel research and development spending at levels only wide-moat Applied Materials can match. Lam’s large installed base creates stickiness and offers Lam an intimate look into problems faced by chipmakers, providing valuable information it can use to implement solutions and additional capabilities in future tools.

Wide-moat Lam Research delivered fiscal fourth-quarter results above our expectations, boasting strong services revenue amid the weak wafer fab equipment environment. Due to elevated inventories, weaker end-market demand, and macroeconomic headwinds, we’re seeing reduced equipment demand at many of Lam’s top customers. Management reiterated the expectation that wafer fab equipment spending will be down over 25% to the low- to mid-$70 billion range, implying an overall memory decline in the mid-40% range year over year. However, management expects the second half of the calendar year will track better than the first half and provided sequentially stronger fiscal first-quarter guidance. While we expect the next few quarters to be challenging for Lam, we are confident in the firm’s leadership position in deposition and etch and believe the long-term growth opportunity for semiconductor capital equipment is strong. With this, we are maintaining our $620 fair value estimate and view the shares as modestly overvalued.

Lam Research is a major vendor of semiconductor fabrication tools. Specifically, it is the market share leader in dry etch, a critical step in the chipmaking process where material is selectively removed. We believe Lam has a wide economic moat as a result of cost advantages and intangible assets related to equipment design. Lam's leadership position creates scale advantages that fuel research and development spending at levels only wide-moat Applied Materials can match. Lam’s large installed base creates stickiness and offers Lam an intimate look into problems faced by chipmakers, providing valuable information it can use to implement solutions and additional capabilities in future tools.

Wide-moat Lam Research reported fiscal third-quarter results in line with our expectations, with weak memory equipment sales partially offset by strength in foundry and logic applications. Management expects calendar 2023 wafer fab equipment spending to be down over 25% to the low- to mid-$70 billion range, which is slightly lower than our outlook. Due to elevated inventories, weaker end-market demand, and macroeconomic headwinds, we’re seeing slowing equipment demand at many of Lam’s key customers. Historically, Lam was most leveraged to memory chipmakers, which have slashed their 2023 capital expenditure budgets by 40% to 50% on average. Although the firm has done well to gain share at logic and foundry customers such as TSMC and Intel, we see the next several quarters being quite rough for Lam. However, we believe this weakness is mostly priced into the stock, and we see shares of wide-moat Lam as undervalued relative to our unchanged $620 fair value estimate.

Lam Research is a major vendor of semiconductor fabrication tools. The firm is the leader in dry etch, a critical step in the chipmaking process where material is selectively removed. We believe Lam has a wide economic moat as a result of cost advantages and intangible assets related to equipment design. Lam's leadership position creates scale advantages that fuel research and development spending at levels only Applied Materials and Tokyo Electron can match. At the end of 2022, Lam had an installed base of 84,000 units, up from 40,000 in 2015. This large installed base creates stickiness and offers Lam an intimate look into problems faced by chipmakers, providing valuable information it can use to implement solutions and additional capabilities in future tools.

Wide-moat Lam Research reported fiscal second-quarter results in line with our expectations, with strong year-over-year growth in logic, foundry, and NAND equipment sales. However, management expects calendar 2023 wafer fab equipment, or WFE, spending to be down over 20% year over year due to sharply lower memory capital expenditure, export restrictions to China, and overall weaker chip demand following the COVID-19-induced boom and amid broad macroeconomic headwinds. This outlook is consistent with our model, as we anticipate Lam’s next several quarters to be challenging. We are maintaining our fair value estimate of $620 per share, as we expect Lam to return to healthy growth in calendar 2024. While we believe prospective investors should find current levels attractive, we think the market will continue to punish Lam until its memory customers show signs of more normalized inventory levels and improving end-market demand.

Wide-moat Lam Research reported fiscal first-quarter results that came in ahead of our expectations, thanks to strong foundry and logic demand and slightly better supply chain conditions. Management expects calendar 2023 wafer fab equipment, or WFE, spending to be down over 20% year over year primarily due to weaker memory investments and the latest export restrictions to China. Specifically, the negative revenue impact from the restrictions is expected to be in the range of $2 billion to $2.5 billion. These assumptions are consistent with our recent model update and factored into our unchanged fair value estimate of $620 per share. We think prospective investors should find current levels attractive based on Lam’s favorable long-term prospects.

We are lowering our fair value estimate for wide-moat Lam Research to $620 per share from $720 after incorporating recent export restrictions and weaker wafer fab equipment, or WFE, expectations for 2023. On Oct. 12, close peer Applied Materials lowered its fiscal fourth-quarter revenue outlook by $400 million due to the latest export restrictions intended to curb China’s chip ambitions and ability to advance its military technology. We expect Lam to also be negatively impacted given its dominance in 3D NAND equipment and exposure to Yangtze Memory Technologies, or YMTC, China’s NAND champion that is a qualified vendor for 128-layer 3D NAND for Apple’s iPhones sold in China. We had already reduced our NAND equipment sales outlook for Lam stemming from Micron’s recent capital expenditure cuts for its fiscal 2023, but we are further lowering our 2023 WFE assumptions as TSMC has also cut its capital expenditure budget for 2022 (from $40 billion to $36 billion) and is likely to reduce spending in 2023, in our view. While shares of Lam are undervalued at current levels, we think market conditions will remain volatile for several quarters as the firm navigates uncertainty related to export restrictions and tepid demand in 2023.

Lam Research is a major vendor of semiconductor fabrication tools. The firm is the leader in dry etch, a critical step in the chipmaking process where material is selectively removed. We believe Lam has a wide economic moat as a result of cost advantages and intangible assets related to equipment design. Lam's leadership position creates scale advantages that fuel research and development spending at levels only Applied Materials and Tokyo Electron can match. At the end of 2021, Lam had an installed base of 75,000 units, up from 40,000 in 2015. This large installed base creates stickiness and offers Lam an intimate look into problems faced by chipmakers, providing valuable information it can use to implement solutions and additional capabilities in future tools.

Wide-moat Lam Research reported fiscal fourth-quarter results that came in ahead of our expectations. We note Lam and its peers have been dealing with supply chain constraints that have prevented equipment suppliers from fulfilling robust wafer fab equipment, or WFE, demand. Although Micron recently lowered its capital-expenditure outlook, Lam has benefited from greater exposure to foundry and logic chipmakers such as TSMC and Intel. Despite weaker PC and smartphone demand, Lam provided strong September quarter guidance, which we attribute to unfulfilled demand at logic/foundry customers. Looking ahead, we think WFE levels are likely to decline in 2023 mainly due to weaker memory capital expenditure spending. Our $720 fair value estimate is intact, and we think prospective investors should find current levels attractive based on Lam’s favorable long-term prospects.