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Analysts behind the growth and valuation curves as TSM and MU signal WFE expansion into 2029
Transition to Gate-All-Around (GAA) transistors and HBM4 displays Lam's etch and deposition dominance
Dec quarter earnings on Wednesday afternoon should send estimates and targets higher
Lam Research ((LRCX - Free Report) ) became a Zacks #1 Rank again ahead of its earnings report Wednesday afternoon.
As with many semiconductor companies, from chip designers like NVIDIA ((NVDA - Free Report) ) and Advanced Micro Devices ((AMD - Free Report) ) to the foundries like Taiwan Semi ((TSM - Free Report) ) and Intel ((INTC - Free Report) ), the bull case for wafer fabrication equipment (WFE) companies like Lam Research has shifted from a cyclical recovery to a structural "content gain" play.
And it didn't hurt that two weeks ago TSMC revealed expanded capex plans for their "fabs" in Arizona and Taiwan and Micron ((MU - Free Report) ) broke ground on a $100 billion leading-edge memory manufacturing complex in Onondaga County, New York, which will include up to four fabs capable of producing advanced memory to support the rising demand for artificial intelligence systems and devices.
Since then, there have been a flurry of investment bank analyst actions, including raising EPS estimates and price targets...
It looks like most of these analysts were stuck in their Sep quarter narratives -- before the Micron and Sandisk ((SNDK - Free Report) ) DRAM and NAND flash memory/storage explosion -- with average targets below $200!
BofA to $245
Stifel to $250
Wells to $250
Needham to $250
UBS to $255
Deutsche to $260
RBC initiates with $260
Citi to $265
The 2026 "Etch Intensity" Supercycle
While the lithography laser light show of ASML ((ASML - Free Report) ) often grabs the WFE headlines, the transition to Gate-All-Around (GAA) transistors and HBM4 (High Bandwidth Memory) is where Lam’s etch and deposition dominance becomes the primary bottleneck solver.
Lam Research’s Systems segment revenues are likely to have registered strong growth in their Q2 of FY'26 (ends June), mainly driven by the strength of its foundry business which continues to benefit from rising investments in advanced chip manufacturing, especially for AI and HPC applications.
The company’s strong position in etch and deposition tools, which are critical for smaller and more complex transistor designs, has made it a key supplier to major foundries.
Lam’s new technologies, such as the Aether dry resist extreme ultraviolet (EUV) patterning solution and the Akara conductor etch system, have been gaining traction with leading-edge chipmakers as well. These advanced technologies improve pattern precision and process efficiency, which is essential for the ongoing transition to next-generation nodes like gate-all-around transistors.
We believe that the company’s sustained focus on expanding technological leadership, along with the rising demand for AI and advanced computing chips, has strengthened its foundry business. This is likely to have boosted Lam Research’s Systems revenues in Q2.
The Zacks model estimates second-quarter Systems’ revenues to be $3.41 billion, indicating a year-over-year increase of 29.7%.
3 Strategic Pillars for LRCX
1. The GAA Inflection (TSMC 2nm/A14): TSMC is aggressively scaling 2nm capacity at Fabs 20 and 22, targeting over 140,000 wafers per month by year-end. GAA architectures are roughly 20% more etch-intensive than FinFET. Lam’s selective etch and ALD (Atomic Layer Deposition) tools are mission-critical for the complex "nanosheet" releases required at these nodes.
2. The HBM4 War (Micron vs Samsung): The memory market is entering a "Supercycle" driven by AI. Samsung and Micron are racing to 16-layer HBM4 stacks. This vertical scaling relies on High-Aspect-Ratio (HAR) etching for Through-Silicon Vias (TSVs) -- a segment where Lam maintains a dominant market share. As stacks get taller, the margin for error shrinks, favoring Lam’s Cryo 3.0 etching technology.
3. Financial Fortress: With global WFE spending tracking toward a record $150 billion, Lam is capturing high-margin growth. Their Customer Support Business Group (CSBG) provides a resilient recurring revenue floor (~30% of total revenue), ensuring stability even as capital expenditure cycles fluctuate.
Bottom Line: Lam is the "digital blacksmith" of the AI era. With 2nm ramping and memory going vertical, Lam’s content-per-wafer is at an all-time high. Trading at a forward P/E of 40x and 11x sales -- vs ASML at 44x and 13x -- it appears analysts are still cautious assigning software growth multiples to the chip sector. That means they still underappreciate the margin expansion coming from the shift to the Angstrom era (sub-2nm) that will impact the entire hardware ecosystem.
By the way, one analyst who didn't miss the ride since the Sep quarter was our own Dave Bartosiak who runs the Zacks Surprise Trader portfolio. He bought LRCX shares on October 14 at $139 and was enjoying a 60%+ gain with shares above $223 this week. I expect that ride to continue higher after Wednesday's Dec quarter report.
Kevin Cook is a Senior Stock Strategist at Zacks where he runs the TAZR Trader portfolio and owns NVDA and TSM shares.
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Bull of the Day: Lam Research (LRCX)
Key Takeaways
Lam Research ((LRCX - Free Report) ) became a Zacks #1 Rank again ahead of its earnings report Wednesday afternoon.
As with many semiconductor companies, from chip designers like NVIDIA ((NVDA - Free Report) ) and Advanced Micro Devices ((AMD - Free Report) ) to the foundries like Taiwan Semi ((TSM - Free Report) ) and Intel ((INTC - Free Report) ), the bull case for wafer fabrication equipment (WFE) companies like Lam Research has shifted from a cyclical recovery to a structural "content gain" play.
And it didn't hurt that two weeks ago TSMC revealed expanded capex plans for their "fabs" in Arizona and Taiwan and Micron ((MU - Free Report) ) broke ground on a $100 billion leading-edge memory manufacturing complex in Onondaga County, New York, which will include up to four fabs capable of producing advanced memory to support the rising demand for artificial intelligence systems and devices.
Since then, there have been a flurry of investment bank analyst actions, including raising EPS estimates and price targets...
It looks like most of these analysts were stuck in their Sep quarter narratives -- before the Micron and Sandisk ((SNDK - Free Report) ) DRAM and NAND flash memory/storage explosion -- with average targets below $200!
BofA to $245
Stifel to $250
Wells to $250
Needham to $250
UBS to $255
Deutsche to $260
RBC initiates with $260
Citi to $265
The 2026 "Etch Intensity" Supercycle
While the lithography laser light show of ASML ((ASML - Free Report) ) often grabs the WFE headlines, the transition to Gate-All-Around (GAA) transistors and HBM4 (High Bandwidth Memory) is where Lam’s etch and deposition dominance becomes the primary bottleneck solver.
Lam Research’s Systems segment revenues are likely to have registered strong growth in their Q2 of FY'26 (ends June), mainly driven by the strength of its foundry business which continues to benefit from rising investments in advanced chip manufacturing, especially for AI and HPC applications.
The company’s strong position in etch and deposition tools, which are critical for smaller and more complex transistor designs, has made it a key supplier to major foundries.
Lam’s new technologies, such as the Aether dry resist extreme ultraviolet (EUV) patterning solution and the Akara conductor etch system, have been gaining traction with leading-edge chipmakers as well. These advanced technologies improve pattern precision and process efficiency, which is essential for the ongoing transition to next-generation nodes like gate-all-around transistors.
We believe that the company’s sustained focus on expanding technological leadership, along with the rising demand for AI and advanced computing chips, has strengthened its foundry business. This is likely to have boosted Lam Research’s Systems revenues in Q2.
The Zacks model estimates second-quarter Systems’ revenues to be $3.41 billion, indicating a year-over-year increase of 29.7%.
3 Strategic Pillars for LRCX
1. The GAA Inflection (TSMC 2nm/A14): TSMC is aggressively scaling 2nm capacity at Fabs 20 and 22, targeting over 140,000 wafers per month by year-end. GAA architectures are roughly 20% more etch-intensive than FinFET. Lam’s selective etch and ALD (Atomic Layer Deposition) tools are mission-critical for the complex "nanosheet" releases required at these nodes.
2. The HBM4 War (Micron vs Samsung): The memory market is entering a "Supercycle" driven by AI. Samsung and Micron are racing to 16-layer HBM4 stacks. This vertical scaling relies on High-Aspect-Ratio (HAR) etching for Through-Silicon Vias (TSVs) -- a segment where Lam maintains a dominant market share. As stacks get taller, the margin for error shrinks, favoring Lam’s Cryo 3.0 etching technology.
3. Financial Fortress: With global WFE spending tracking toward a record $150 billion, Lam is capturing high-margin growth. Their Customer Support Business Group (CSBG) provides a resilient recurring revenue floor (~30% of total revenue), ensuring stability even as capital expenditure cycles fluctuate.
Bottom Line: Lam is the "digital blacksmith" of the AI era. With 2nm ramping and memory going vertical, Lam’s content-per-wafer is at an all-time high. Trading at a forward P/E of 40x and 11x sales -- vs ASML at 44x and 13x -- it appears analysts are still cautious assigning software growth multiples to the chip sector. That means they still underappreciate the margin expansion coming from the shift to the Angstrom era (sub-2nm) that will impact the entire hardware ecosystem.
By the way, one analyst who didn't miss the ride since the Sep quarter was our own Dave Bartosiak who runs the Zacks Surprise Trader portfolio. He bought LRCX shares on October 14 at $139 and was enjoying a 60%+ gain with shares above $223 this week. I expect that ride to continue higher after Wednesday's Dec quarter report.
Kevin Cook is a Senior Stock Strategist at Zacks where he runs the TAZR Trader portfolio and owns NVDA and TSM shares.