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Semiconductor manufacturing equipment supplier Lam Research (NASDAQ: LRCX) has been in fine form on the stock market in 2025, with the share price up 22% year to date as of Feb. 19, and the company's recent quarterly results played a key role in driving this rally.
Lam released its fiscal 2025 second-quarter results on Jan. 29. The company's numbers exceeded expectations and its outlook was enough to convince investors to hit the buy button.
Let's see why that was the case and consider whether it's a good idea to buy this semiconductor stock right now.
A positive outlook thanks to artificial intelligence (AI)
In the fiscal quarter that ended Dec. 29, Lam's revenue increased 16% year over year to $4.4 billion, while the bottom line grew at a faster pace of 28%. Management remarked that the demand for its foundry/logic and dynamic random-access memory (DRAM) manufacturing equipment remained healthy last year.
The memory market is turning out to be a bright spot for Lam. More specifically, Lam notes that its "gate-all-around and advanced packaging technologies are critical enablers for AI device manufacturing, including GPUs and high-bandwidth memory." The company generated $1 billion in revenue from selling equipment deployed in manufacturing gate-all-around (GAA) nodes and advanced packaging. It expects that figure to at least triple this year.
Meanwhile, rising capital investments by memory manufacturers this year should be a tailwind for Lam, which gets half of its revenue from selling memory manufacturing equipment. Micron Technology, for instance, is expected to increase its capex in the current fiscal year by 73%. Samsung and SK Hynix are also forecasting increased investments in memory production equipment this year.
The broader semiconductor equipment spending environment is likewise set to improve in 2025 and 2026. Industry association SEMI is forecasting a 6.8% increase in equipment spending this year, followed by a stronger jump of 14% next year. That isn't surprising as foundries such as TSMC and tech giants in the U.S. have announced plans to increase their capital spending in 2025 to support the ongoing buildout of AI infrastructure.
Lam's guidance for the current quarter points toward revenue of $4.65 billion -- a year-over-year increase of 20% -- along with a jump of 28% on the bottom line.
Robust earnings growth potential and valuation point toward more upside
Lam Research is expected to benefit from solid semiconductor spending over the next couple of years, which explains why analysts are forecasting the company's bottom line will grow at a healthy pace. Consensus estimates are for a 23% increase in the company's earnings this fiscal year (which will end in June) to $3.73 per share.