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WEDNESDAY - Wolfe Research has downgraded Lam Research Corporation (NASDAQ:LRCX) stock from Outperform to Peer Perform, citing increasing concerns over the company's exposure to the NAND memory sector.
The semiconductor equipment manufacturer has faced challenges due to ongoing downward revisions in the overall Wafer Fabrication Equipment (WFE) industry, particularly in the NAND segment, which has led to the firm's bearish outlook.
Analysts at Wolfe Research have pointed out that Lam Research's performance has been lagging behind its peers over the past year, with the stock declining by 1%, while competitors such as ASML (AS:ASML), Applied Materials (NASDAQ:AMAT), and KLA Corporation (KLAC) have seen gains of 10%, 15%, and 25%, respectively.
Despite this underperformance, Lam Research's stock continues to trade at a premium valuation of approximately 23 times the firm's estimated earnings per share (EPS) for the calendar year 2025 (CY25), which is significantly higher than its etch/deposition peer AMAT, trading at around 18 times, and above Lam Research's five-year average multiple of approximately 18 times.
The downgrade reflects a cautious stance on the semiconductor capital equipment sector, with Wolfe Research analysts emphasizing the need for selectivity due to the current market conditions. The analysts have expressed concerns that the street estimates for Lam Research's earnings in CY25 and CY26 are overly optimistic, given the current state of the NAND market.
The firm's negative view on the NAND market, which is among the most depressed areas of WFE compared to its prior peak, is a key factor in the decision to downgrade Lam Research's rating. The analysts expect that the company's valuation will adjust as the market continues to reset expectations for the NAND recovery, which could lead to continued underperformance relative to its peers.
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