LRCX Lam Research
A top-quality etch and deposition franchise riding the AI upcycle, but the price already assumes the cycle never turns.
The story
Lam Research is one of a few firms that dominate wafer fabrication equipment, and it leads in etch and deposition. Those steps get more intensive as chips move to 3D NAND, gate-all-around transistors, high-bandwidth memory (HBM) and advanced packaging. Demand is cyclical, but AI-driven memory and logic capex has pushed the company into a strong upcycle, with record margins and a raised outlook for 2026. It is a mature oligopoly franchise that still has a long reinvestment runway, since its installed base and service revenue keep switching costs high.
Year-1 growth of 20% reflects the AI and HBM upcycle and the higher 2026 outlook. After that, growth should fade toward the 10% five-year revenue CAGR and then to 3.5% at maturity, below the risk-free rate. I set the margin at 35%, a little under the peak of 36.2%, so it reflects margins across the cycle rather than the top. Sales-to-capital sits above the reported 1.43 because the business needs little capex, and the 10-year horizon reflects the durability of the etch and deposition moat. The market price implies more growth than these drivers do, so the name looks rich but not absurd.
Value drivers
| Revenue growth (Y1) | 20.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 10y |
| Target operating margin | 35.0% |
| Years to target margin | 3 |
| Sales-to-capital | 2.00 |
| Beta | 1.30 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 11.0% |
| Terminal WACC | 9.6% |
Valuation bridge
| PV of explicit FCFF | 70.71B |
| PV of terminal value | 98.97B |
| Equity value | 169.82B |
| ÷ shares → per share | $135.70 |
News
neutral -0.10 · 8 articles
- Lam Research (LRCX) Outperforms Broader Market: What You Need to Know
- Wall Street Bulls Look Optimistic About Lam Research (LRCX): Should You Buy?
- Lam Research (LRCX) Following Higher 2026 Outlook And Packaging Growth Is It Still Undervalued
- Lam Research, Marvell Technology, Western Digital, FormFactor, and Penguin Solutions Shares Are Falling, What You Need To Know
- Richard Ross Names Semiconductor Equipment And Memory Buys
- 2 Volatile Stocks with Exciting Potential and 1 We Turn Down
- The Zacks Analyst Blog Highlights Applied Materials, Lam Research and KLA
- How Far Can Applied Materials Stock Move On You In A Year?
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 27.88B | 20.0% | 35.8% | 8.78B | 2.32B | 6.46B | 5.82B |
| 2 | 32.94B | 18.2% | 35.4% | 10.26B | 2.53B | 7.73B | 6.27B |
| 3 | 38.32B | 16.3% | 35.0% | 11.79B | 2.69B | 9.10B | 6.66B |
| 4 | 43.88B | 14.5% | 35.0% | 13.51B | 2.78B | 10.73B | 7.07B |
| 5 | 49.44B | 12.7% | 35.0% | 15.22B | 2.78B | 12.44B | 7.39B |
| 6 | 54.80B | 10.8% | 35.0% | 16.86B | 2.68B | 14.19B | 7.59B |
| 7 | 59.73B | 9.0% | 35.0% | 18.38B | 2.47B | 15.92B | 7.67B |
| 8 | 64.01B | 7.2% | 35.0% | 19.70B | 2.14B | 17.56B | 7.63B |
| 9 | 67.42B | 5.3% | 35.0% | 20.75B | 1.71B | 19.04B | 7.45B |
| 10 | 69.78B | 3.5% | 35.0% | 21.48B | 1.18B | 20.30B | 7.16B |
Key risks
- A WFE downturn, especially a cut in memory capex after the HBM build-out
- US export controls reducing China revenue, which has been an outsized share
- Competitors such as AMAT and TEL, plus in-house efforts, taking etch and deposition share
Catalysts
- Adoption of gate-all-around and backside power, which raises etch and deposition intensity
- A NAND upgrade cycle and growth in advanced packaging for AI accelerators