Is Lam Research’s Recent 21% Rally Justified After Latest Earnings Outlook?

If you have been watching Lam Research lately, you know it has been quite a ride. Whether you are an investor on the fence or simply curious about this semiconductor powerhouse, there is no denying how dynamic things have become with LRCX. Over the past three months, shares have surged more than 21% as investors have warmed to the chip sector again and shrugged off broader market jitters. Year-to-date, Lam is up a robust 36%, adding to already impressive long-term gains. What is driving this momentum? Investors seem to be reconsidering how much risk and upside exists in the current valuation, especially after recent market developments shifted sentiment on the semiconductor industry as a whole.

But with Lam Research’s value score showing a 3 out of 6 on classic undervaluation checks, there is reason for cautious optimism. This score means the stock passes half of the standard screens for finding bargains, hinting at both opportunities and possible red flags. As we look at the numbers, though, remember that valuation is never just about a scorecard or a few price swings. Next, let’s dig into the various approaches used to assess Lam’s value and see how it stands up under the spotlight. And by the end of this article, I will share an even more meaningful way to gauge whether LRCX deserves a place in your portfolio.

Lam Research delivered 19.1% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

Approach 1: Lam Research Cash Flows

The Discounted Cash Flow (DCF) model takes the future cash flows a company is expected to generate and calculates what they are worth in today's dollars. This is a common tool for estimating a company's true, or intrinsic, value.

Lam Research reported trailing twelve-month free cash flow (FCF) of $5.57 billion. Looking ahead, analysts project steady growth, with free cash flow expected to reach $6.81 billion by 2030. The model considers yearly estimates over the next decade, accounting for both analyst forecasts and more conservative growth assumptions later in the period.

Based on this outlook, the DCF model for Lam Research assigns an intrinsic fair value of $55.13 per share. When this figure is compared to the current market price, the stock appears 78.5% overvalued. In summary, today’s share price reflects significantly more optimism than the company’s projected cash generation supports.

Result: OVERVALUED

Our DCF analysis suggests Lam Research may be overvalued by 78.5%. Find undervalued stocks based on DCF analysis or create your own screener to find better value opportunities.

Approach 2: Lam Research Price vs Earnings

The price-to-earnings (PE) ratio is a key metric for valuing established, profitable companies like Lam Research. This measure helps investors understand how much they are paying for each dollar of Lam’s annual net income, making it especially useful when the company has consistent earnings power.

Generally, a "normal" or "fair" PE ratio depends on market expectations about a company’s future growth and risk profile. Fast-growing businesses with a track record of steady profits often command higher PE ratios. In contrast, companies facing industry headwinds or structural challenges usually trade at a discount to the market average.

Currently, Lam Research trades at a PE ratio of 23.2x. This is noticeably below both the semiconductor industry average of 28.1x and the peer group average of 31.6x. For additional context, Simply Wall St’s Fair Ratio for Lam, which incorporates factors like earnings growth, profit margins, and risk, stands at 28.3x. Since Lam’s current PE is meaningfully below this fair benchmark, the stock appears attractively valued on an earnings basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Lam Research Narrative

A Narrative is your way to connect the story you believe about a company, such as Lam Research’s role in global chip innovation or its long-term risks, with the numbers behind the business including its future revenue, profit margins, and fair value.

Rather than just looking at statistics, Narratives help you frame investment decisions by linking your perspective to a financial forecast and, ultimately, an updated estimate of what the company’s shares should be worth.

Within the Simply Wall St community, Narratives are an easy, accessible tool that allows millions of investors to outline their own view of a company and instantly see how their assumptions affect fair value estimates compared to the current price.

When news breaks, earnings are released, or forecasts change, these Narratives automatically update and help you spot when Lam is trading above, below, or close to your personal fair value. This can assist you in deciding whether to buy, sell, or hold.

For instance, one user’s Narrative for Lam might expect explosive AI-driven chip demand and a $135 price target, while another focuses on risks of market saturation or competition and sees fair value closer to $80. Your decision starts with the story you believe most.

Do you think there's more to the story for Lam Research? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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