Semiconductor manufacturing equipment supplier Lam Research (NASDAQ: LRCX) has been in fine form on the stock market in 2025, with the share price up 22% year to date as of Feb. 19, and the company's recent quarterly results played a key role in driving this rally.
Lam released its fiscal 2025 second-quarter results on Jan. 29. The company's numbers exceeded expectations and its outlook was enough to convince investors to hit the buy button.
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Let's see why that was the case and consider whether it's a good idea to buy this semiconductor stock right now.
A positive outlook thanks to artificial intelligence (AI)
In the fiscal quarter that ended Dec. 29, Lam's revenue increased 16% year over year to $4.4 billion, while the bottom line grew at a faster pace of 28%. Management remarked that the demand for its foundry/logic and dynamic random-access memory (DRAM) manufacturing equipment remained healthy last year.
The memory market is turning out to be a bright spot for Lam. More specifically, Lam notes that its "gate-all-around and advanced packaging technologies are critical enablers for AI device manufacturing, including GPUs and high-bandwidth memory." The company generated $1 billion in revenue from selling equipment deployed in manufacturing gate-all-around (GAA) nodes and advanced packaging. It expects that figure to at least triple this year.
Meanwhile, rising capital investments by memory manufacturers this year should be a tailwind for Lam, which gets half of its revenue from selling memory manufacturing equipment. Micron Technology, for instance, is expected to increase its capex in the current fiscal year by 73%. Samsung and SK Hynix are also forecasting increased investments in memory production equipment this year.
The broader semiconductor equipment spending environment is likewise set to improve in 2025 and 2026. Industry association SEMI is forecasting a 6.8% increase in equipment spending this year, followed by a stronger jump of 14% next year. That isn't surprising as foundries such as TSMC and tech giants in the U.S. have announced plans to increase their capital spending in 2025 to support the ongoing buildout of AI infrastructure.
Lam's guidance for the current quarter points toward revenue of $4.65 billion -- a year-over-year increase of 20% -- along with a jump of 28% on the bottom line.
Robust earnings growth potential and valuation point toward more upside
Lam Research is expected to benefit from solid semiconductor spending over the next couple of years, which explains why analysts are forecasting the company's bottom line will grow at a healthy pace. Consensus estimates are for a 23% increase in the company's earnings this fiscal year (which will end in June) to $3.73 per share.
Analysts then expect a small dip in fiscal 2026, followed by a stronger jump in fiscal 2027.
LRCX EPS Estimates for Current Fiscal Year data by YCharts.
However, a strong semiconductor spending environment for 2026 could help Lam deliver stronger earnings growth than analysts expect. And if the company manages to achieve $4.80 per share in earnings after a couple of years and trades at 28 times earnings at that time (in line with the tech-heavy Nasdaq-100 index's current forward earnings multiple), its stock price could jump to $134.
That would be a 52% jump from current levels. Lam Research stock is trading at about 27 times trailing earnings and close to 24 times forward earnings. So, investors can buy this semiconductor stock at an attractive valuation right now. They may not want to miss this opportunity considering the potential upside Lam could offer over the next couple of years.
Should you invest $1,000 in Lam Research right now?
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
