LRCX - Long-term growth trajectory
Here's my two page summary into $Lam Research(LRCX)$
I personally prefer $Applied Materials(AMAT)$ and $KLA-Tencor(KLAC)$ in this space, but closely follow and admire both Lam and $ASML Holding NV(ASML)$ .
What are your thoughts on Lam?
Lam Research sells wafer fabrication equipment and related services to the semiconductor industry. The company's main clients are chipmakers, including foundries, integrated device manufacturers (lDMs), and memory producers (such as $Taiwan Semiconductor Manufacturing(TSM)$ ). Customers use Lam's products to manufacture advanced semiconductors(notably logic,DRAM and NAND chips) used in smartphones.data centers and computers.
1.Revenue
Lam's revenue is divided into two segments:
Systems Revenue: This captures sales of new deposition, etch and clean tools, These tools are integral to enabling device scaling, including vertical 3D NAND, Gate-All-Around (GAA) transistors and High Bandwidth Memoty (HBM).
Customer Support Business Group(CSBG): This captures spares, services, upgrades and refurbished tools, The CSBG provides lifecycle solutions for over 90,000 installed chambers globally CSBG has grown steadily and now comprises around 3540% of total revenue, providing a recurting and resilient revenue stream.
The consistent combination of top-line revenue growth, margin expansion and aggressive buybacks has delivered over 1.000% returns to long-term shareholders.
2.Competition
Lam operates in a highly consolidated industry, Its competitors include: Applied Materials mainly in etch and deposition tools, and $Tokyo Electron Ltd.(TOELY)$ - who are strong across similar processseptents.
3.Barriers to entry and pricing power
Lam has undertaken significant capital investments into R&D, suggesting that capital, time and expertise represent a barrier to entry. Their equipment is essential for enabling current and futurcnodes - which creates a situation where customers depend on Lam's tools.Lam's large installed base and CSBG recurring revenue streams show it can monetise relationships beyond initial sales ofits tools.
4.Outlook
I am's long-term growth trajectory is supported by multiple drivers (some of which are cyclical):
AI and High-Performance Computing (HPC): Growth in generative Al is driving demand for advanced chips. Al-related CAPEX is expected to drive over $200 billion in wafcr fab equipment('FE) investment over the next 5 years.
3D Sealing: The transition from planar to 3D architectures in NAND and logic (e.g, CFET, GAA)increases the intensity of etch and deposition processes, directly expanding Lam's available marketEtch/deposition intensity per wafer is forecast to rise 1.7x to 2.0x across DRAM and foundry/logicsegments.
CSBG Growth: Lam targets outpacing installed base growth in CSBG through upgrades and fleet productivity solutions, underpinned by Al/Ml, integration into equipment diagnostics.
Lam is expected to grow faster than overall wafer fabrication equipment (WFE) spend by targetingdeposition- and etch-intensive technology inflections like Gate-All-Around (GAA), backside power delivery and dry EUV processing
5. Risks
Iam is exposed to several risks:
Cyclicality: The semiconductor capital equipment industry is deeply cyclical. $pending patternsfluctuate based on memory pricing, inventory cycles and macroeconomic factors.Customer concenttation: Lam has a handful of large customers - notably $amsung, TSMC, Inteland $K Hynix- who account for a significant portion of its revenue. A reduction in CAPEX fromany of these firms could materially impact results.
Geopolitical risk: Export restrictions, speciically on sales to Chinese customers, pose on going uncertainty, The semiconductor supply chain is increasingly subject to trade policy and nationalsecurity considerations.
"Technology Risk: Lam's growth relies on there being a successful adoption of new architectures (e.g>500-ayer 3D NAND,CFET). Delays or changes in technology roadmaps by customers could impact Lam's SAMM or competitive position.
6.Valuation
Despite its strong fundamentals and market position, Lam trades below its 5-year average on both price-to-sales, price-to-earnings and (more importantly) FCF yield. Compared to peers like AMAT, KLAC and ASMl, Lam appears undervalued given its earnings trajectory and strategic positioning
7.Conclusion:
Lam Research is strategically positioned at the heart of semiconductor scaling challenges, Its leadership inetch and deposition, growing services business, and close alignment with customer technology roadmaps make it well-placed to benefit from the secular Al-driven demand cycle, However, risks from cyclicality,customer concentraton, and geopoltical developments warrant close monitoring.
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