Lam Research: A Chip Stock Capitalizing on the AI Boom
Amidst the artificial intelligence (AI) chip boom, Lam Research might not be on the radar of investors actively seeking opportunities. However, a closer look at the company’s prospects and potential for growth reveals that it should not be overlooked. Lam Research, a semiconductor company, is well positioned to take advantage of the hot technology trend in AI chips. Despite recent declines in revenue and earnings, Lam Research’s latest results indicate that a turnaround is imminent.
Signs of a Turnaround in Lam Research’s Growth
After the release of its fiscal 2024 second-quarter results, Lam Research experienced a surge in stock prices. The company reported $3.76 billion in revenue for the quarter, marking a decline of 29% from the previous year. Non-GAAP earnings also shrank, dropping to $7.52 per share from $10.71 per share in the same quarter last year. Weak spending on semiconductor equipment, particularly in the memory chip market, contributed to this decline. Lam Research relies on memory equipment sales for 48% of its revenue, making it vulnerable to market fluctuations.
Despite the recent downturn, Lam Research’s guidance for the current quarter shows a promising outlook. The company expects $3.7 billion in revenue and $7.25 per share in adjusted earnings, signaling a smaller year-over-year decline and a positive momentum shift. Analysts anticipate a decline in revenue and earnings for the full year of 2024 but expect Lam Research to return to solid growth in the following fiscal year starting in September 2024.
Driving Factors: Semiconductor Equipment Spending and AI Adoption
The turnaround in Lam Research’s prospects can be attributed to anticipated growth in semiconductor equipment spending. Overall spending is projected to increase by 15% in 2024, reaching a total of $97 billion. The memory equipment market is expected to experience even faster growth at 65%, generating $27 billion in revenue. This surge is fueled by the increasing adoption of AI across various industries.
Lam Research management highlighted the company’s ability to secure advanced packaging wins for high-bandwidth memory (HBM), a critical component for advanced AI servers. The demand for HBM is expected to grow exponentially in the coming years. Chipmakers like Nvidia have integrated HBM into their AI chips, with the potential for significant expansion. For instance, Nvidia’s recently announced GH200 Grace Hopper Superchip boasts 282GB of HBM, and their upcoming H200 AI processor is expected to have 141GB of HBM.
Furthermore, the adoption of AI in smartphones and personal computers (PCs) is expected to drive the need for additional memory chips. Each AI-enabled smartphone or PC may require an extra 4GB to 8GB of dynamic random-access memory (DRAM) per unit. This increased demand for memory chips will alleviate the previous weakness faced by Lam Research due to oversupply.
Future Growth Potential for Lam Research
Analysts predict a significant jump in Lam Research’s revenue and earnings in the coming fiscal years. Assuming the company achieves $44 per share in earnings by fiscal 2026, its stock price could increase by 50% to $1,276. Lam Research’s rally in the AI stock market is anticipated to continue as conditions in the memory market improve, leading to substantial growth in revenue and earnings. Investors should consider capitalizing on this opportunity to invest in Lam Research’s promising future.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research and Nvidia. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Analyst comment
Positive news: Lam Research is well positioned to take advantage of the AI chip boom, with a promising outlook for the current quarter and anticipated growth in semiconductor equipment spending. The adoption of AI in various industries and the increasing demand for memory chips are driving factors for Lam Research’s future growth potential. Analysts predict a significant jump in revenue and earnings. Investors should consider capitalizing on this opportunity.
