Lam Research Stock To Double?

Lam Research (NASDAQ: LRCX), a leading supplier of chip fabrication equipment, stands to benefit from the surging capital expenditures fueled by the generative artificial intelligence boom. Although AI bellwether Nvidia (NASDAQ: NVDA) dominates the headlines with its stock up over 3x over the last two years and its valuation nearing $4 trillion, lesser-known players such as Lam remain crucial to manufacturing the AI chips that Nvidia sells. These stocks might even offer more grounded value with more meaningful upside potential.

The data is compelling. Capital spending on advanced chip making equipment is projected to nearly double between 2023 and 2028, per SEMI and global capex outlays are expected to top $100 billion in 2025 alone.  Lam, which specializes in deposition and etching equipment, two of the most critical steps in chip production – may be well-positioned to capture a meaningful share of this investment. The company’s key customers include industry giants including TSMC, Samsung, and Intel, making it a central player across both the logic and memory segments of the chip market. Although traditionally strong in memory chips, Lam is expanding its presence in advanced logic chips and packaging technologies – areas seeing growing demand as chip design complexity increases. AI workloads require not just advanced processing capabilities but also high-bandwidth memory (HBM) and complex stacking architectures. For example, producing HBM chips is three times more wafer-intensive than standard DRAM, due to lower bit density and the need for 3D stacking. This directly translates into higher demand for tools made by the likes of Lam.

Image by Pete Linforth from Pixabay

How Lam Stock Can Double To $200

While chip designers like Nvidia have seen soaring valuations, Lam’s stock has underperformed. Shares are down about 9% over the past 12 months and currently trade at roughly 24x forward earnings, compared to roughly 35x for Nvidia. To be sure, the valuation gap is partially due to Lam’s exposure to China, which accounted for 31% of revenues in the March quarter. Ongoing U.S. export restrictions have weighed on this segment, potentially limiting Lam’s ability to capitalize on the sizable Chinese market. Lam is expected to see revenues grow by about 22% in FY25, per consensus estimates, although growth is projected to cool to about 2% in FY’26, partly due to these China-related headwinds with earnings also remaining flat.

However, if higher AI-related demand, coupled with a potential easing of chip equipment export restrictions to China, drive sustained revenue growth at FY’25 rates of growth of about 22% annually over the next three years, Lam’s revenue could rise by about 1.8x. Even if margins remain around current levels of 27% (as seen over the first nine months of FY25), and if the valuation multiple expands to about 30x (from 24x currently, a 1.25x increase), the stock could potentially double from current levels of around $97 to over $200 per share.

There are a couple of ways this could happen. The U.S. and China confirmed a trade framework last week that includes rare earth exports and a possible easing of tech restrictions. If this thaw in tensions extends to chip equipment exports, companies like Lam could see renewed access to a key growth market, further boosting revenues. Additionally, chip making is becoming more capital-intensive, meaning that a greater share of the chip’s cost is now equipment-related – a clear positive for companies such as Lam. Moreover, advanced packaging techniques such as stacking and stitching together multiple chips, already in use for AI workloads, should boost the demand for Lam’s high-end equipment.

There Are Risks As Well

Of course, Lam faces notable risks. Beyond the China issue, the memory chip segment, where Lam has traditionally been strong, has experienced pricing pressure. Flash memory prices have been on the decline due to easing demand from consumer markets and capex in this space has been muted with key players scaling back production. Additionally, geopolitical tensions, macroeconomic uncertainty, and U.S. tariffs could further cloud Lam’s near-term growth. Although Lam is a highly specialized player with strong IP, it may not have the same moat as say a company like ASML which effectively has a monopoly over its trade of extreme ultraviolet lithography.

Lam, on the other hand, has several competitors, including Applied Materials and Tokyo Electron which also offer similar services.  That being said, the longer-term upcycle appears to be intact. The global semiconductor market is projected to exceed $1 trillion in annual revenue by 2030, up from about $624 billion in 2024 per the Wall Street Journal. As chipmakers adopt next-gen technologies to power AI, the need for advanced manufacturing tools is likely to remain elevated playing directly into Lam’s strengths.

While investing in a single stock like LRCX carries risk, the Trefis Reinforced Value (RV) Portfolio,  has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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