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On Wednesday, Lynx Equity expressed a strong conviction in Lam Research Corporation (NASDAQ:LRCX), maintaining its $100 price target (PT) and reiterating the stock as one of its top picks for the year. The firm’s analysts highlighted a significant divergence between their assessments and the gloomier consensus expectations that have emerged over the past quarter. According to InvestingPro data, the stock has taken a significant hit, dropping 10.5% over the past week, despite maintaining a GOOD overall financial health score and showing strong profitability metrics with a 47.69% gross margin.
Despite a quarter marked by revised estimates, Lynx Equity has kept its forecast for Lam Research unchanged, anticipating another year of robust revenue growth and meaningful margin improvement. The Street’s consensus has significantly lowered its outlook, particularly regarding the company’s performance in China, where revenue growth predictions have shifted from an increase of around 10% to a decline of approximately 18%. InvestingPro analysis reveals that Lam Research generated $15.59 billion in revenue over the last twelve months, with analysts forecasting 15% revenue growth for fiscal year 2025. Additionally, consensus expectations for the NAND sector have been tempered following negative capital expenditure commentary from industry players like Micron Technology (NASDAQ:MU) and SK Hynix.
Lynx Equity, however, believes that the cuts to China revenue growth estimates are excessively severe and not reflective of the CFO’s previous earnings call remarks. Similarly, the firm contends that the reduced Street expectations for Lam Research’s gross margin in Calendar Year 2025 are not in line with the CFO’s commentary. On the NAND front, Lynx Equity remains more optimistic than the consensus, dismissing the impact of Micron’s reported NAND spending cut on the overall industry wafer fabrication equipment (WFE) market for Calendar Year 2025. They argue that any pullback in Micron’s NAND capital expenditures is likely to be counterbalanced by increased spending from Kioxia, which has recently received fresh capital.
The combined underestimation of China’s market and NAND WFE has led to a downward revision of overall Street WFE growth estimates for Calendar Year 2025, with consensus figures ranging between a 5% to 10% decline. In contrast, Lynx Equity estimates that WFE growth will be flat to up 5%. As a prominent player in the Semiconductors & Semiconductor Equipment industry, Lam Research maintains strong fundamentals with a current ratio of 2.53 and operates with a moderate level of debt. Get access to 12 additional key insights about LRCX with an InvestingPro subscription, including exclusive Fair Value analysis and comprehensive Pro Research Reports. The firm models Calendar Year 2025 with revenues of $19.1 billion and earnings per share (EPS) of $4.08, projecting a gross margin of 48.2%, versus the Street’s consensus of $18.1 billion in revenue, $3.73 EPS, and a 47.2% gross margin.
Lynx Equity’s $100 price target is based on a 25x multiple to its Calendar Year 2025 EPS estimate. The firm expects the earnings event tonight and the Analyst Day next month to act as positive catalysts for Lam Research stock.
In other recent news, ASML (AS:ASML) reported remarkable fourth-quarter results for 2024, with record net sales of €9.3 billion, surpassing expectations and indicating a promising outlook for the semiconductor equipment sector. This development coincided with a robust capital expenditure (capex) forecast from Taiwan Semiconductor Manufacturing Co. (TSMC), which surpassed analysts’ expectations, signaling a potentially lucrative year for the semiconductor industry. However, amidst these positive developments, Lam Research Corporation experienced a downgrade from Outperform to Peer Perform by Wolfe Research due to concerns over the company’s exposure to the NAND memory sector.
Lam Research Corporation also announced a significant advancement in semiconductor manufacturing through its innovative dry photoresist technology, now qualified for use in advanced 2nm and below logic chips. This technology enhances the resolution, productivity, and yield of extreme ultraviolet (EUV) lithography and has been endorsed by imec, a prominent nanoelectronics and digital technology research center. Bernstein SocGen Group analyst Sara Russo and TD Cowen have also provided their perspectives on these recent developments.
These developments come after Lam Research Corporation’s robust Q3 earnings, with revenues reaching $4.17 billion, marking an 8% increase from the previous quarter, and earnings per share of $0.86, surpassing guidance. The company also announced a $1 billion share repurchase program and paid $261 million in dividends. Despite a downgrade from Wolfe Research and concerns over the NAND memory sector, Lam Research remains optimistic about its prospects in the advanced packaging sectors.
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