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The global semiconductor industry is undergoing a transformation, driven by advances in artificial intelligence (AI), the Internet of Things (IoT), and 5G technologies. While the big chip giants like Nvidia (NVDA) and Advanced Micro Devices (AMD) are gaining all the spotlight, some companies flying under the radar are playing an equally important role in this industry.
One such company is Lam Research (LRCX), which provides critical wafer fabrication equipment and services that enable the production of nearly every advanced chip in use today. The company went through a 1-for-10 stock split last year to make its shares more accessible to investors. Valued at $104.4 billion, Lam Research’s stock has gained 6.4% in the year-to-date, compared to the S&P 500 Index’s ($SPX) dip of 0.12%.
Nonetheless, Wall Street believes this semiconductor stock has a potential upside of 64%. Let’s find out why.
AI-Led Semiconductor Growth Is Driving Lam Research’s Financials
The high demand for semiconductors across an array of industries has been working in Lam Research’s favor. In the fourth quarter, total revenue increased by 16.5% to $4.37 billion, while adjusted earnings per share stood at $0.91, surpassing the consensus estimate. Advanced chips have been critical in powering AI applications, which process massive amounts of data. Lam Research has introduced groundbreaking technologies to meet the growing demand for these advanced semiconductors.
Systems revenue (comprising sales of new leading-edge equipment in deposition, etch, and clean markets) increased by roughly 14% in the December quarter. Deferred revenue (revenue yet to be recognized), excluding shipments to Japan, totaled $2.03 billion in the quarter. At the end of the December quarter, the company had $5.7 billion in cash, cash equivalents, and restricted cash balances.
The icing on the cake is that Lam Research is a dividend stock with a forward yield of 1.2%. With a forward payout ratio of 23.7%, its dividend is sustainable and has the potential to increase. Furthermore, LRCX has increased its dividends consistently over the past 10 years, with the most recent increase of 15% in 2024 to $0.30 per share.
For 2025, analysts expect Lam Research’s revenue to increase by 19.3% to $17.8 billion, alongside an earnings increase of 23.6%. Revenue and earnings are expected to increase by 4% and 5.6%, respectively, in 2026. Trading at 21.7x forward earnings, Lam appears to be a reasonable AI stock to buy now.
Growth Potential Is Outstanding, But There Are Risks
Recently, the company unveiled the ALTUS Halo. This innovation will address the demand for materials that can improve chip performance and efficiency, which are especially important in AI and high-performance computing. Furthermore, the company introduced Akara, an advanced conductor etch tool designed to meet the precise needs of next-generation semiconductor devices. These technological advancements strengthen Lam’s position as a leader in semiconductor fabrication equipment.
While Lam Research’s technological strength gives it an advantage in the semiconductor industry, the company operates in a complex geopolitical environment. China generates a significant portion of Lam’s revenue. In the December quarter, China accounted for around 31% of total revenue. Ongoing trade tensions and export restrictions by President Donald Trump pose potential threats to this revenue stream. The U.S. government’s scrutiny of technology transfers to China could have an impact on Lam’s operations and financial performance.
Is LRCX Stock a Buy, Hold, or Sell on Wall Street?
On Wall Street, analysts remain optimistic about Lam Research’s growth prospects. The company’s emphasis on high-aspect-ratio etch and deposition processes enable it to meet the demands of advanced memory and chip production. Recently, JPMorgan analyst Harlan Sur reiterated a “Buy” rating for Lam Research stock, emphasizing the company’s solid performance and promising growth outlook. He expects Lam’s strategic efforts to broaden its addressable market and strengthen its position in the core etch and deposition segments to be key drivers of future expansion. KeyBanc maintained a similar stance with a price target of $105.
Overall, Lam Research stock is a “Moderate Buy.” Of the 29 analysts covering the stock, 19 rate it a “Strong Buy,” two say it is a “Moderate Buy,” and eight rate it a “Hold.” The mean target price of $95.81 suggests upside potential of 25.7% from current levels. Plus, the Street-high estimate of $125 implies upside potential of 64% over the next 12 months.
