Last Update 05 Dec 25

Fair value Increased 1.12%

LRCX: AI Memory And WFE Upswing Will Drive Balanced Future Returns

Analysts have nudged our Lam Research fair value estimate higher, from $158.52 to $160.30. This reflects increased confidence in the companys record profitability, sustained beat and raise cadence, and strengthening AI driven WFE demand despite some valuation pushback.

Analyst Commentary

Street research remains broadly constructive on Lam Research, with a series of target price increases reflecting confidence in the company's positioning in AI driven wafer fab equipment, memory, and advanced node technologies. At the same time, some valuation sensitive voices are starting to question how much near term upside is already embedded in the stock after its recent rally.

Across the spectrum, analysts focus on Lam's execution against a backdrop of strengthening WFE demand, normalized inventories at key customers, and a still evolving policy and competitive landscape in semicap and AI infrastructure.

Bullish Takeaways

Bullish analysts highlight Lam's leadership in 3D stacking and memory as a core driver of AI scaling, arguing this capability supports above market growth and justifies higher valuation multiples.
Recent quarterly results, including record profitability, clean beats across major metrics, and guidance running high single to low double digits above consensus, reinforce confidence in management execution and earnings visibility.
Improving memory fundamentals and normalized inventories at top customers are seen as setting up Lam for outsized benefit when WFE enters a sustained upcycle, supporting continued positive estimate revisions.
Some upward revisions to targets explicitly tie long term growth to AI data center capex, with models translating large scale AI infrastructure investments into meaningful incremental WFE demand, where Lam is viewed as a key beneficiary.

Bearish Takeaways

Bearish analysts caution that the share price has already rallied significantly ahead of tool demand, and that near term earnings upside may not be sufficient to support current valuation levels.
There is concern that strong memory pricing will take time to convert into new equipment orders, raising the risk of a gap between investor expectations and actual growth in shipment volumes.
Some see a more favorable near term risk reward in selected peers, arguing that Lam's premium multiple could compress if the beat and raise cadence slows or if WFE spending expectations for 2026 prove too ambitious.

What's in the News

Opened a new $65 million Tualatin Building G in Oregon, adding up to 700 workspaces and expanding U.S. R&D capacity to support anticipated $1 trillion semiconductor industry growth (company announcement).
Stockholders approved an amendment to the Restated Certificate of Incorporation at the November 4, 2025 annual meeting, updating the Lam Research corporate governance framework (company filing).
Completed repurchase of 40.4 million shares, or 3.15% of outstanding shares, for approximately $3.39 billion under the buyback program announced May 21, 2024 (company filing).
Issued December quarter 2025 guidance calling for US GAAP revenue of $5.20 billion, plus or minus $300 million, operating margin of 32.9%, plus or minus 1%, and diluted EPS of $1.15, plus or minus $0.10 (earnings guidance).
Launched the VECTOR TEOS 3D deposition tool to address 3D advanced packaging and chiplet integration challenges for AI and high performance computing customers, targeting higher yield, throughput, and energy efficiency (product announcement).

Valuation Changes

Fair Value Estimate has risen slightly, from $158.52 to $160.30, reflecting modestly stronger profitability assumptions.
Discount Rate has fallen slightly, from 10.58% to 10.49%, implying a marginally lower perceived risk profile in the valuation model.
Revenue Growth has edged down slightly, from 10.84% to 10.66% annually, indicating a small tempering of top line expectations.
Net Profit Margin has increased slightly, from 28.37% to 28.68%, incorporating improved operating leverage and efficiency assumptions.
Future P/E has risen marginally, from 33.31x to 33.40x, signaling a modest uptick in the multiple applied to forward earnings.

Rising demand for advanced chips and government incentives is fueling Lam's revenue growth, customer diversification, and market expansion.
Leadership in innovative process technologies and operational improvements is boosting margins, profitability, and long-term earnings stability.
Geopolitical risks, customer concentration, market cyclicality, rising competition, and high R&D costs all threaten Lam's margins, revenue stability, and long-term profitability.

Catalysts

About Lam Research

Designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits.What are the underlying business or industry changes driving this perspective?

Rapidly rising AI workloads and the associated need for higher storage, bandwidth, and processing power are accelerating the adoption of advanced chip architectures (such as gate-all-around, 3D NAND, and advanced packaging), which increases demand for Lam's etch and deposition tools-supporting sustained revenue growth and robust order visibility.
Expanding government incentives and a global push for semiconductor self-sufficiency (e.g., US and EU CHIPS Acts) are spurring new fab construction and regional equipment investments, which directly contributes to higher system sales and broadens Lam's customer base, reducing revenue cyclicality and regional risk.
Lam's leadership in new process technologies-like ALD Moly for metal deposition and advanced packaging solutions (SABRE 3D systems)-positions the company to capture an increasing share of spend on next-generation chip manufacturing, leading to market share gains, higher average selling prices, and expanding gross margins over the long term.
Growing adoption of complex, performance-driven semiconductor solutions in emerging verticals such as automotive, industrial IoT, and edge computing is expanding the overall wafer fab equipment market, enabling Lam to benefit from secular increases in served market (SAM), driving both top-line and long-term earnings growth.
Ongoing operational improvements-including supply chain optimization, close-to-customer manufacturing strategies, and a growing pool of high-margin recurring service revenue-are enhancing cost efficiency and margin stability, which are likely to drive durable improvements in net margins and overall profitability.

Lam Research Earnings and Revenue Growth

Lam Research Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Lam Research's revenue will grow by 8.5% annually over the next 3 years.
Analysts assume that profit margins will shrink from 29.1% today to 28.3% in 3 years time.
Analysts expect earnings to reach $6.7 billion (and earnings per share of $5.68) by about September 2028, up from $5.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $7.8 billion in earnings, and the most bearish expecting $5.7 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, up from 24.9x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
Analysts expect the number of shares outstanding to decline by 1.64% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.11%, as per the Simply Wall St company report.

Lam Research Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Rising tariffs and ongoing geopolitical uncertainty, particularly in China, could reduce both sales volumes and gross margins, especially as the company's recent outperformance has been aided by stronger-than-expected China spending; future normalization or declines in China demand, along with higher tariffs, are likely to pressure revenues and compress margins.
Customer concentration risk is significant, as a large portion of revenues is tied to a few major global foundries and memory manufacturers; changes in their capital spending patterns, delays in technology transitions, or vendor shifts could materially impact Lam's revenue visibility and earnings stability.
The sustainability of current top-line growth is uncertain amid flat or potentially declining wafer fabrication equipment (WFE) spending in the coming quarters, combined with evidence of lumpiness and cyclicality in NAND and DRAM investments; if end-market demand normalizes or weakens, Lam's revenue growth and profitability could decline.
Intense competition from multinational and emerging Asian semiconductor equipment vendors threatens Lam's market share and pricing power in both established and growth markets (such as advanced packaging and 3D NAND), potentially leading to margin erosion and lower earnings over time.
Significant R&D and operational expenditures are required to maintain technology leadership in areas such as molybdenum (moly) deposition and advanced etch/packaging; failure to commercialize new products profitably or slower-than-expected adoption of next-generation chip architectures may constrain net margin expansion and result in lower returns on invested capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $109.1 for Lam Research based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $135.0, and the most bearish reporting a price target of just $80.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $23.6 billion, earnings will come to $6.7 billion, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 10.1%.
Given the current share price of $105.57, the analyst price target of $109.1 is 3.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analyst Commentary Highlights Upgraded Outlook and Valuation for Lam Research Amid AI Demand Growth