3 Key Risks That Could Drag Down Lam Research Stock

Lam Research (LRCX) has stumbled before. Its stock has plunged more than 30% within a span of less than 2 months on as many as 4 different occasions in recent years, wiping out billions in market value and erasing massive gains in a single correction. If history is any guide, LRCX stock isn’t immune to sudden, sharp declines.

Specifically, we see these risks:

1. Margin Compression from Unfavorable Mix-Shift
2. Intensifying China Revenue Concentration Risk
3. Inventory Bloat and Potential for Channel Stuffing

Risk 1: Margin Compression from Unfavorable Mix-Shift

• Details: Guided sequential decline in gross margin to 48.5% +/- 1% for Dec-2025 quarter, Potential for multiple compression if peak margins are perceived to be in the past
• Segment Affected: Overall Corporate Profitability
• Potential Timeline: Immediate (Q2 2026 earnings release on 1/28/2026)
• Evidence: CFO explicitly cited ‘customer mix and tariffs’ for the expected sequential decline in gross margin (Q1 2026 Earnings Call, Oct 2025), Gross margin peaked at 50.6% in the September 2025 quarter, indicating a potential near-term top (Q1 2026 Earnings Release, Oct 2025)

Risk 2: Intensifying China Revenue Concentration Risk

• Details: Expected revenue impact of ~$600 million in calendar year 2026 from US ‘affiliate rule,’ De-rating of valuation multiple due to unpredictable geopolitical risk and earnings volatility
• Segment Affected: Systems Revenue, specifically from domestic Chinese customers
• Potential Timeline: Next 2-4 Quarters
• Evidence: Management’s admission that China is expected to represent less than 30% of total revenues in calendar year 2026, a significant drop (Q1 2026 Earnings Call, Oct 2025), Applied Materials, a key competitor, also noted a reduction in their accessible market in China due to trade rule changes (AMAT Earnings Call, Nov 2025)

Risk 3: Inventory Bloat and Potential for Channel Stuffing

• Details: Risk of future revenue and earnings decline if current sales are borrowing from future demand; Sharp stock price correction if inventory write-downs or a significant slowdown in new orders materializes
• Segment Affected: Systems Revenue
• Potential Timeline: Q3-Q4 2026
• Evidence: Days Inventory Outstanding (DIO) remains elevated compared to historical levels, despite a recent decrease (Q1 2026 Earnings Release, Oct 2025), Competitor commentary from Applied Materials about expectations for ‘some digestion in China’ could signal broader channel inventory concerns (AMAT Earnings Call, Nov 2025)

What Is The Worst That Could Happen?

Looking at LRCX, the risk comes through loud and clear during market downturns. It plunged about 75% in both the Dot-Com bubble and the Global Financial Crisis. The inflation shock saw a 56% dip. Even the smaller hits, like 2018 and Covid, dragged it down around 45%.

But the Stocks fall even when markets are good—think events like earnings, business updates, and outlook changes. Read LRCX Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

Is Risk Showing Up In Financials Yet?

• Revenue Growth: 25.7% LTM and 4.0% last 3-year average.
• Cash Generation: Nearly 28.3% free cash flow margin and 33.0% operating margin LTM.
• Valuation: Lam Research stock trades at a P/E multiple of 51.9

*LTM: Last Twelve Months

If you want more details, read Buy or Sell LRCX Stock.

A Multi Asset Portfolio Gives You Safer Smarter Growth

Individual picks are volatile, but diversified assets offset each other. A multi-asset portfolio helps you stay the course, capture upside, and reduce downside.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’s strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices