Today's Decline of Lam Research
Today's Decline of Lam Research
Shares of semiconductor equipment supplier Lam Research (LRCX 1.69%) took a hit Thursday morning, dropping 4.7% by 12:25 p.m. ET. Notably, the company is missing out on the rebound many stocks are experiencing following Wednesday's market tumult.
Lam's decline was triggered by the lukewarm outlook delivered by one of its major clients on Wednesday afternoon. However, the dip in share price for a company well-positioned to capitalize on the AI revolution could present an opportunity for investors to buy in rather than steer clear.
Micron's forecast disappoints
After the market closed Wednesday, Micron Technology (MU 2.47%) reported its fiscal 2025 first-quarter earnings. While its results were generally in line with expectations, its outlook for the fiscal second quarter fell flat with the market. Micron's management pointed out that the AI data center construction is progressing steadily, but the consumer-centric PC and smartphone segments remain sluggish, as they have since mid-2022. PC and smartphone memory chips continue to be a significant part of Micron's business, leading to second-quarter guidance that fell far short of expectations.
Furthermore, Micron singled out NAND flash memory as being notably weak, while acknowledging that the DRAM memory market is stronger. This could explain why Lam is underperforming other equipment suppliers on Thursday; Lam has traditionally held a strong presence in the semiconductor capital equipment sector related to the vertical stacking of NAND modules.
Micron announced plans to cut its capital expenditures for NAND manufacturing this year and suggested that the overall pace of NAND investments across the industry would need to slow for chipmakers to achieve better profitability. As the industry's perceived leader in NAND equipment, it comes as no surprise to see Lam Research experiencing a downturn in response to that commentary.
An opportunity presents itself
Despite the apparent gloom, investors should consider the fact that investments in NAND manufacturing have been low for several years, and that Lam has adjusted its business strategy to become more diversified between NAND, DRAM, and logic markets. In fact, NAND flash memory equipment accounted for only 11% of Lam's revenue in the previous quarter. DRAM memory, which appears to be still strong, represented 24%, while logic and foundry sales combined accounted for 65% of total sales.
Though its short-term outlook may appear lackluster, Lam's performance shouldn't be expected to decline significantly, though its growth might be slightly slower. Trading at a PE ratio of 22, Lam's stock isn't overvalued given the ongoing AI build-out.
Investors might find the dip in Lam Research's share price due to its major client's lukewarm outlook an opportunity for investing, considering the company's strong position in the AI revolution. Micron's announcement of cutting NAND manufacturing investments and suggesting a need for industry-wide slowdown could impact Lam's traditional NAND-related business, but its diversification into DRAM and logic markets could mitigate this impact.