Should Investors Reconsider Lam Research After 114% Rally and Next-Gen Chip Expansion News?

• Ever wondered if Lam Research is still a smart buy after all its recent buzz? Let’s cut through the noise and see where value and opportunity might really lie with this stock.
• After powering up 114.2% so far this year and delivering a massive 119.1% return over the past 12 months, the share price suggests investors are pricing in high growth or shifting risk perceptions.
• Market confidence has been bolstered by sector-wide excitement about chip demand and government initiatives supporting semiconductor manufacturers. Recently, Lam Research was highlighted in headlines surrounding new fabrication contracts and expansion into next-generation chip technologies, both of which are fueling speculation about its long-term trajectory.
• Lam Research currently boasts a valuation score of 3 out of 6, based on our comprehensive valuation checks. This means it is undervalued on half the metrics we track. We’ll walk through each valuation approach, but stick around to the end for an even better way to see if Lam Research is truly worth your investment.

Lam Research delivered 119.1% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

Approach 1: Lam Research Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's true worth by forecasting its future cash flows and then "discounting" them back to their value today. This approach aims to reveal the present value of all the money the company is expected to generate in the years ahead.

For Lam Research, the most recent reported Free Cash Flow (FCF) is around $5.7 Billion. Analyst predictions cover cash flow growth for the next five years, after which projections are extrapolated by Simply Wall St. By 2030, Lam’s FCF is expected to reach $7.9 Billion. These rising figures reflect well on the company's operational momentum, but the real test is how these numbers stack up when considering today's share price.

Based on the DCF model's projections and methodology, Lam Research’s estimated intrinsic value comes in at $64.18 per share. Compared to the current share price, this implies the stock is 141.7% overvalued. The market price is significantly higher than what the model suggests is justified by future cash flows.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Lam Research may be overvalued by 141.7%. Discover 926 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Lam Research.

Approach 2: Lam Research Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used measure for valuing consistently profitable companies like Lam Research. It gives investors a way to assess how much they are paying today for each dollar of the company’s reported earnings. Companies with strong earnings growth and lower risk profiles typically command higher PE ratios. In contrast, slower growth or higher risk might justify a lower valuation.

Lam Research’s current PE ratio stands at 33.5x. In comparison, its peers average a slightly higher 37.1x and the broader semiconductor industry sits at around 35.8x. These comparisons provide some context, but do not account for all the nuances that could affect Lam’s fair value.

This is where Simply Wall St’s proprietary Fair Ratio comes in. By considering a combination of earnings growth, profit margins, the company’s size, risks, and its industry, the Fair Ratio offers a more holistic view than just comparing with peers or industry averages. For Lam Research, the Fair Ratio is calculated at 34.1x, almost exactly in line with the current multiple.

With the actual PE ratio just slightly below the Fair Ratio, Lam Research’s valuation on this metric looks entirely reasonable in today’s market.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1434 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Lam Research Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are a simple yet powerful tool that let you connect your own view or “story” about a company with the actual numbers, such as your expected fair value, future revenue, earnings, and profit margins.

Instead of just crunching ratios, a Narrative helps you express why you believe a company’s future looks strong or risky, and links these views directly to a financial forecast and estimated fair value. On Simply Wall St’s Community page, millions of investors use Narratives to map out their investment case, compare their outlook with others, and decide if the stock fits their strategy.

Narratives are actionable—they let you track where the current Price sits versus your Fair Value, making it easier to spot buy and sell moments based on your outlook. As real-world news, earnings, or company developments occur, your Narrative can update dynamically, so your perspective always stays relevant.

For Lam Research, for example, some investors see strong long-term growth and set a bullish fair value of $135 per share, while others focus on risk and competitive pressure, setting their fair value as low as $80 per share. Your personal Narrative is both your forecast and your guide.

Do you think there's more to the story for Lam Research? Head over to our Community to see what others are saying!

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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