The increasing demand for semiconductor manufacturing equipment drives solid growth for this company.
An acceleration in this semiconductor company's growth, combined with its cheap valuation, makes it a no-brainer buy right now.
Share prices of Lam Research(NASDAQ: LRCX) shot up more than 6% following the April 23 release of its fiscal 2025 third-quarter earnings (for the three months ended March 30), driven by the company's stronger-than-expected results and guidance that point toward strong demand for its semiconductor manufacturing equipment.
So far this year, the stock has been under pressure due to its reliance on China for a large chunk of sales and the turmoil caused by the ongoing tariff war. However, Lam's results and outlook indicate that it is doing well despite those challenges, thanks to the robust demand for its chipmaking equipment sparked by catalysts such as artificial intelligence (AI).
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Let's take a closer look at the factors driving Lam's growth and examine why this semiconductor stock is worth buying hand over fist right now.
Lam Research benefits from AI-fueled semiconductor demand
Lam Research reported 24% year-over-year growth in revenue for the previous quarter, while its non-GAAP (generally accepted accounting principles) net income grew at a faster pace of 30%. Lam management attributed the impressive growth to the robust demand for leading-edge foundry equipment, which is used in manufacturing advanced chips deployed in AI servers as well as smartphones and personal computers (PCs).
Meanwhile, the strong demand for high-bandwidth memory (HBM) is turning out to be another tailwind for Lam's manufacturing equipment. That's not surprising, as memory equipment accounts for 43% of Lam's total revenue, and memory manufacturers have been ramping up the output of HBM to meet demand from chipmakers such as Nvidia and Advanced Micro Devices.
For instance, memory specialist Micron Technology expects the HBM industry to generate $35 billion in revenue this year. That's higher than the $30 billion estimate Micron issued in December last year. This upward revision in the HBM market's growth can be attributed to the growing size of this memory type in the latest AI graphics cards from AMD and Nvidia.
Nvidia's latest-generation Blackwell GPUs (graphics processing units) are packing 4 times the memory as compared to the previous generation Hopper processors. Similarly, AMD has increased the HBM capacity on its MI325X AI GPU by 96 gigabytes (GB) over its previous MI300X chip. As a result, it is easy to see why memory manufacturers such as Micron and Samsung are investing more money in HBM capacity.
With the HBM market expected to exceed $100 billion in annual revenue by 2030, Lam Research should ideally witness solid demand for its memory manufacturing equipment over the long run. Another thing worth noting is that Lam Research expects to grow at a faster pace than the overall wafer and fabrication equipment (WFE) market.
Management believes that the growing complexity of chips, combined with the company's strong product portfolio, places it in a nice position to gain a bigger share of the WFE market. What's more, Lam management says it has "not seen any meaningful changes to our customers' plans" amid the tariff-fueled trade war. All this explains why the company's guidance for the current quarter is well ahead of expectations.
Buying this stock is a no-brainer right now
Lam management said it expects revenue in the current quarter to land at $5 billion at the midpoint of its guidance range. That's significantly higher than the $4.6 billion consensus estimate. Lam's guidance points toward a potential year-over-year increase of 29% in its top line, an acceleration over the growth it recorded in the previous quarter.
Earnings, meanwhile, are expected to increase at a faster pace of 48% thanks to an expansion in margins. Moreover, Lam management believes the company could achieve revenue of $25 billion to $28 billion by 2028, which would be a big jump compared to the $16 billion it generated in 2024. Throw in the company's improving margin profile, and it won't be surprising to see Lam maintaining healthy levels of earnings growth in the future.
That's why it would be a good idea for investors to buy this semiconductor stock, as it is currently trading at less than 20 times trailing earnings, a discount to the tech-laden Nasdaq-100 index's trailing earnings multiple of 27.
The stock's 12-month price target of $90, as per 33 analysts covering Lam, points toward 26% gains from current levels. But don't be surprised to see it do better than that, thanks to its healthy bottom-line growth, which could encourage the market to reward it with a premium valuation.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Lam Research, and Nvidia. The Motley Fool has a disclosure policy.
