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LRCX's Gross Margin Near 50%: More Upside Ahead Amid AI-Led Demand?
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Key Takeaways
LRCX posted 49.9% Q3 FY26 non-GAAP gross margin as revenues rose 24% to $5.84B.
Lam Research is benefiting from advanced etch/deposition demand, localized manufacturing and pricing power.
LRCX raised its 2026 wafer fab equipment spending view to about $140B and sees continued 2027 growth.
Lam Research Corporation’s (LRCX - Free Report) non-GAAP gross margin is close to 50%, and the company appears positioned for further upside as artificial intelligence (AI)-driven chip demand accelerates. Strong spending on advanced memory, logic chips and AI infrastructure is helping LRCX improve both profitability and revenue growth.
In the third quarter of fiscal 2026, Lam Research’s non-GAAP gross margin improved 90 basis points (bps) year over year and 20 bps sequentially to 49.9% and came at the high end of management’s guidance range. Revenues rose 24% year over year to $5.84 billion, while earnings per share climbed 41% to a record $1.47. Management expects gross margin to improve further to 50.5% in the June quarter despite some customer mix pressure. This indicates a year-over-year and sequential improvement of 20 bps and 60 bps, respectively.
There are several factors that support gross margin expansion for the company. Lam Research has expanded manufacturing closer to customers, improving logistics and operational efficiency. The company is also benefiting from higher demand for advanced etch and deposition tools used in AI-related semiconductor production. As chip architectures become more complex, Lam Research’s technology gains pricing power because customers depend on its tools to improve yields and productivity.
AI-driven memory demand is another major catalyst. Management noted that DRAM revenues reached record levels in the third quarter of fiscal 2026 as chipmakers increased investments in high-bandwidth memory and advanced nodes. Lam Research also expects advanced packaging revenue growth to exceed 50% in calendar year 2026, reflecting rising AI server demand.
Importantly, LRCX now forecasts wafer fabrication equipment spending of about $140 billion in 2026, up from its earlier estimate of $135 billion. The company also sees continued industry growth in 2027. While semiconductor cycles remain volatile, Lam Research’s stronger operational execution, expanding AI exposure and improving product mix suggest that margin expansion may still have room to run.
How Rivals Fare Against Lam Research
Applied Materials, Inc. (AMAT - Free Report) and KLA Corporation (KLAC - Free Report) remain two of the biggest competitors challenging Lam Research as AI-driven semiconductor demand lifts profitability across the equipment industry.
Applied Materials has also benefited from rising AI and memory spending. In its last reported results for the first quarter of fiscal 2026, the company generated Semiconductor Systems revenues of $5.14 billion, supported by strong DRAM and advanced packaging demand. Applied Materials continues to invest heavily in materials engineering and advanced chip packaging technologies, areas that are becoming increasingly important for AI servers and high-bandwidth memory. In the third quarter, the company’s non-GAAP gross margin expanded 20 bps year over year to 49.1%.
KLA Corporation focuses on process control, inspection and yield management solutions. As AI chips become more complex, semiconductor makers need more testing and monitoring tools to improve production efficiency. KLA Corporation’s strong exposure to advanced logic and memory manufacturing has helped it maintain healthy margins and steady cash flow growth. The company’s non-GAAP gross margin has been above 60% over the past several quarters.
LRCX’s Share Price Performance, Valuation and Estimates
Shares of Lam Research have surged 247.3% over the past year compared with the Zacks Electronics – Semiconductors industry’s growth of 98.1%.
LRCX One-Year Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Lam Research trades at a forward price-to-earnings ratio of 39.73, significantly higher than the industry’s average of 35.46.
Lam Research Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Lam Research’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 37% and 36.2%, respectively. Estimates for fiscal 2026 have been revised downward over the past seven days, while estimates for fiscal 2027 have been revised upward over the same time frame.
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LRCX's Gross Margin Near 50%: More Upside Ahead Amid AI-Led Demand?
Key Takeaways
Lam Research Corporation’s (LRCX - Free Report) non-GAAP gross margin is close to 50%, and the company appears positioned for further upside as artificial intelligence (AI)-driven chip demand accelerates. Strong spending on advanced memory, logic chips and AI infrastructure is helping LRCX improve both profitability and revenue growth.
In the third quarter of fiscal 2026, Lam Research’s non-GAAP gross margin improved 90 basis points (bps) year over year and 20 bps sequentially to 49.9% and came at the high end of management’s guidance range. Revenues rose 24% year over year to $5.84 billion, while earnings per share climbed 41% to a record $1.47. Management expects gross margin to improve further to 50.5% in the June quarter despite some customer mix pressure. This indicates a year-over-year and sequential improvement of 20 bps and 60 bps, respectively.
There are several factors that support gross margin expansion for the company. Lam Research has expanded manufacturing closer to customers, improving logistics and operational efficiency. The company is also benefiting from higher demand for advanced etch and deposition tools used in AI-related semiconductor production. As chip architectures become more complex, Lam Research’s technology gains pricing power because customers depend on its tools to improve yields and productivity.
AI-driven memory demand is another major catalyst. Management noted that DRAM revenues reached record levels in the third quarter of fiscal 2026 as chipmakers increased investments in high-bandwidth memory and advanced nodes. Lam Research also expects advanced packaging revenue growth to exceed 50% in calendar year 2026, reflecting rising AI server demand.
Importantly, LRCX now forecasts wafer fabrication equipment spending of about $140 billion in 2026, up from its earlier estimate of $135 billion. The company also sees continued industry growth in 2027. While semiconductor cycles remain volatile, Lam Research’s stronger operational execution, expanding AI exposure and improving product mix suggest that margin expansion may still have room to run.
How Rivals Fare Against Lam Research
Applied Materials, Inc. (AMAT - Free Report) and KLA Corporation (KLAC - Free Report) remain two of the biggest competitors challenging Lam Research as AI-driven semiconductor demand lifts profitability across the equipment industry.
Applied Materials has also benefited from rising AI and memory spending. In its last reported results for the first quarter of fiscal 2026, the company generated Semiconductor Systems revenues of $5.14 billion, supported by strong DRAM and advanced packaging demand. Applied Materials continues to invest heavily in materials engineering and advanced chip packaging technologies, areas that are becoming increasingly important for AI servers and high-bandwidth memory. In the third quarter, the company’s non-GAAP gross margin expanded 20 bps year over year to 49.1%.
KLA Corporation focuses on process control, inspection and yield management solutions. As AI chips become more complex, semiconductor makers need more testing and monitoring tools to improve production efficiency. KLA Corporation’s strong exposure to advanced logic and memory manufacturing has helped it maintain healthy margins and steady cash flow growth. The company’s non-GAAP gross margin has been above 60% over the past several quarters.
LRCX’s Share Price Performance, Valuation and Estimates
Shares of Lam Research have surged 247.3% over the past year compared with the Zacks Electronics – Semiconductors industry’s growth of 98.1%.
LRCX One-Year Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Lam Research trades at a forward price-to-earnings ratio of 39.73, significantly higher than the industry’s average of 35.46.
Lam Research Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Lam Research’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 37% and 36.2%, respectively. Estimates for fiscal 2026 have been revised downward over the past seven days, while estimates for fiscal 2027 have been revised upward over the same time frame.
Image Source: Zacks Investment Research
Lam Research currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.