Lam Research Corporation (LRCX Quick QuoteLRCX - Free Report) shares rose 8.2% last Friday, following the company's announcement of a massive $25 billion share repurchase authorization on Nov. 5. The move offered some relief to investors after a difficult period for the semiconductor equipment maker.

Since reporting its first-quarter fiscal 2027 results on Oct. 21, Lam Research shares had come under heavy selling pressure, losing 23.1% amid concerns over its near-term outlook. For the second quarter, Lam Research expects revenues of $8.6 billion, plus or minus $400 million, non-GAAP gross margin of 52.5%, non-GAAP operating margin of 40.5% and non-GAAP earnings per share (EPS) of $2.33, plus or minus 15 cents.

Although these projections indicate sequential growth and slightly higher margins, management acknowledged that supply-chain constraints would limit revenue potential. The outlook disappointed investors expecting stronger growth. The stock also came under pressure from a broader semiconductor sell-off, as macroeconomic uncertainties, profit-booking in AI infrastructure stocks and growing concerns over data center spending weighed on investor sentiment.

However, the latest capital return announcement has renewed some investor confidence. Lam Research's long-term business prospects remain encouraging, supported by rising AI-related chip demand and increasing semiconductor manufacturing complexity. Given its strong fundamentals and attractive long-term growth opportunities, investors should consider holding LRCX stock for now.

LRCX’s Strong Q1 Performance Supports the Bullish Case

Lam Research delivered an impressive September quarter performance. Revenues increased 54% year over year to $8.22 billion compared with $5.32 billion in the year-ago quarter. Non-GAAP EPS surged 75% to $2.20 from $1.26.

Lam Research Corporation Price, Consensus and EPS Surprise

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

The company also reported a record non-GAAP gross margin of 52.4%, up from 50.6% in the prior-year quarter. Non-GAAP operating margin expanded to 40.2% from 35%. Operating margin crossed the 40% mark for the first time in the company's history.

Memory and foundry investments supported the strong performance. Memory accounted for 46% of systems revenues, with memory revenues increasing 120% year over year. NAND revenues rose approximately 40% sequentially, while foundry also delivered record revenues.

Lam Research's Customer Support Business Group (“CSBG”) generated nearly $2.5 billion in revenues, increasing 40% year over year and marking its fourth consecutive quarterly record.

Robust AI Spending Supports LRCX’s Long-Term Prospects

Lam Research's long-term growth prospects remain encouraging as AI adoption increases demand for advanced chips, memory and storage. Management expects worldwide wafer fabrication equipment (WFE) spending to reach the mid-$150 billion range in calendar year 2026, followed by more than $200 billion in 2027.

The company expects calendar year 2026 systems revenues to grow more than 40% year over year, marking its third consecutive year of outperforming the WFE market. Several technology trends support this outlook. Increasing demand for high-bandwidth memory (HBM), advanced packaging, leading-edge foundry logic and next-generation NAND technologies is amplifying the need for sophisticated wafer fabrication equipment.

Lam Research is well-positioned to benefit from these developments through its deposition and etch technologies. Its Acara etch and Ether dry resist solutions are gaining traction in advanced chip manufacturing. Management now expects cumulative Ether-related revenues to reach approximately $2.5 billion by the end of this decade, around $1 billion above its previous expectation.

Lam Research expects its CSBG revenues to grow more than 15% year over year in calendar year 2027. This recurring service-related business provides an additional source of growth and helps reduce dependence on new equipment sales.

Management also believes the semiconductor industry is entering a multi-year investment cycle, with customer visibility extending through 2028.

LRCX’s $25B Buyback Plan Strengthens Shareholder Returns

The latest capital return announcement provides another reason to remain invested in Lam Research. The $25 billion repurchase authorization supplements the remaining balance of approximately $3 billion from its previous authorization.

The company also declared a quarterly dividend of 33 cents per share, payable on Jan. 6, 2027. These initiatives reflect management's confidence in its cash generation and long-term business positioning.

Lam Research ended the September quarter with $7.45 billion in cash, cash equivalents and restricted cash compared with $5.60 billion in the June quarter. During the first quarter of fiscal 2027, the company’s free cash flow reached a record $3.24 billion. It repurchased shares worth $1.01 billion and paid $325 million in dividends during the quarter.

LRCX’s Valuation Looks More Attractive After the Decline

Valuation also supports holding Lam Research shares. LRCX trades at a forward 12-month price-to-earnings multiple of 19.26, higher than the broader Zacks Computer and Technology sector average of 16.79. However, the current multiple is significantly below its one-year median of 35.39 and close to its one-year low of 17.82.

Lam Research Forward 12-Month P/E Ratio

Image Source: Zacks Investment Research

This suggests that the recent correction has made the stock considerably more attractive from a valuation perspective. Given Lam Research's strong earnings growth, expanding margins and favorable industry outlook, its current valuation appears reasonable.

Compared with other semiconductor equipment makers, Lam Research trades at a lower multiple than ASML Holding (ASML Quick QuoteASML - Free Report) and KLA Corporation (KLAC Quick QuoteKLAC - Free Report) , while at a higher multiple than Applied Materials (AMAT Quick QuoteAMAT - Free Report) . At present, ASML Holding, KLA and Applied Materials trade at a forward 12-month P/E multiple of 23.64, 22.37 and 18.08, respectively.

Lam Research shares have outperformed the broader tech sector. LRCX stock has gained 17.1% year to date (YTD), significantly higher than the sector’s 4.2% return. The stock has also surpassed the gains of KLA, but has underperformed ASML Holding and Applied Materials. Shares of ASML Holding, Applied Materials and KLA have soared 33.2%, 29.5% and 14%, respectively, YTD.

Lam Research YTD Price Return Performance

Image Source: Zacks Investment Research

Conclusion: Hold Lam Research Stock for Now

Lam Research faces near-term challenges from supply-chain constraints and semiconductor market volatility. However, its record financial performance, strong AI-related growth opportunities, expanding service business and substantial shareholder return plans provide a solid long-term foundation. With its valuation also considerably lower than its 52-week average, investors should consider holding LRCX stock rather than selling into the recent weakness.

Lam Research currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.