Lam Research Corporation (LRCX Quick QuoteLRCX - Free Report) recently posted strong third-quarter fiscal 2025 results, helping its shares rise 7% since the April 23 release. Lam Research, a leader in semiconductor fabrication equipment, reported solid financials, surpassing market expectations and reaffirming its position in the industry amid ongoing fluctuations in the semiconductor cycle.

The stock has declined 1.1% year to date (YTD) in a highly volatile 2025 market scenario, with positive momentum post earnings showing signs of stability and an attractive valuation relative to its industry peers. Nonetheless, LRCX has outperformed the Zacks Computer and Technology sector as well as key semiconductor peers such as Broadcom (AVGO Quick QuoteAVGO - Free Report) , NVIDIA (NVDA Quick QuoteNVDA - Free Report) and Marvell Technology (MRVL Quick QuoteMRVL - Free Report) in the YTD period.

YTD Price Return Performance

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For investors considering their next move, here’s why buying Lam Research stock might be the most prudent approach now.

Q3 Results Show Lam Research’s Financial Resilience

Lam Research’s third-quarter earnings surpassed expectations, showcasing the company’s solid financial foundation. Total revenues reached $4.72 billion, a 24.5% increase year over year, underpinned by continued demand across the memory and logic segments. Despite a challenging backdrop for the semiconductor industry, Lam Research managed a non-GAAP EPS of $1.04, exceeding analyst forecasts and improving 33.5% from the year-ago quarter (adjusted for the stock split).

Lam Research Corporation Price, Consensus and EPS Surprise

Lam Research Corporation price-consensus-eps-surprise-chart | Lam Research Corporation Quote

This strong financial performance reinforces Lam Research’s resilience in navigating an evolving semiconductor cycle. As demand grows for advanced nodes, LRCX’s specialized technology in etch and deposition tools for high-aspect-ratio structures positions it well to capitalize on this trend. The company’s third-quarter results also highlight its effective cost management, which has enabled sustained profitability even amid fluctuating end-market demand.

Datacenter and AI Chip Demand to Fuel Growth for LRCX

Lam Research is benefiting from the booming demand for AI and datacenter chips, which require advanced fabrication technologies. The company’s deposition and etch solutions are critical for producing high-bandwidth memory (HBM) and advanced packaging technologies, which are essential for AI workloads.

In 2024, Lam Research’s shipments for gate-all-around nodes and advanced packaging exceeded $1 billion, and management expects this figure to triple to more than $3 billion by 2025. Additionally, the industry’s migration to backside power distribution and dry-resist processing presents further growth opportunities for Lam’s cutting-edge fabrication solutions.

With AI-driven investments accelerating, Lam’s leading position in etch and deposition makes it a key beneficiary of the next semiconductor spending cycle.

Strategic Investments Aid Lam Research’s Prospects

Lam Research’s continued investment in research & development and product innovation is paying off. The company’s Cryo 3.0 technology is setting new performance benchmarks for high-aspect-ratio dielectric etch applications, giving Lam a technological edge in next-gen semiconductor manufacturing.

Additionally, Lam Research’s Aether dry-resist solution has been selected by multiple customers, including a leading memory manufacturer for high-bandwidth DRAM production. This underscores Lam Research’s growing influence in the memory fabrication market, particularly as HBM demand soars due to AI and HPC growth.

Moreover, Lam has expanded its manufacturing footprint in Asia, improving cost efficiencies and responsiveness to customer demand. These strategic moves allowed Lam to achieve a 160-basis point expansion in operating margins in 2024 despite broader industry challenges. In the third quarter of fiscal 2025, the non-GAAP operating margin improved 210 basis points year over year to 32.8%.

NAND Recovery to Drive Lam Research’s Growth

Lam Research is also positioned to benefit from the rebounding NAND flash market. After a prolonged downturn, NAND spending is showing early signs of recovery.

Although industry-wide NAND investments are still focused on technology upgrades rather than capacity expansion, Lam Research’s molybdenum (Moly) and carbon gap fill solutions are gaining traction. Management expects these technologies to drive hundreds of millions of dollars in NAND-related revenues in 2025.

The ongoing transition to higher-layer count technology (above 200-layer counts) by NAND manufacturers bodes well for Lam Research’s revenue trajectory in the coming years.

Valuation: Lam Research is Undervalued

Lam Research’s valuation remains reasonable. The stock currently trades at a forward price-to-earnings (P/E) ratio of 18.1, which is significantly lower than the sector’s 23.43. The company’s discounted valuation multiple aligns with its long-term growth potential.

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The stock’s P/E ratio is also lower than major semiconductor players, including Broadcom, NVIDIA and Marvell Technology. At present, Broadcom, NVIDIA and Marvell Technology have forward 12-month P/E multiples of 26.68X, 24.71X and 20.03X, respectively.

Conclusion: Buy LRCX Right Now

Lam Research’s discounted valuation, solid financial performance and strategic focus on AI-driven growth make it a compelling investment option right now. The company’s expanding market share in AI and datacenter fabrication, coupled with innovative product launches, strengthens its competitive positioning.

LRCX carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.