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Investing.com -- Bernstein upgraded Lam Research (NASDAQ:LRCX) to Outperform from Market-Perform, citing improving risk-reward dynamics and signs of a potential NAND recovery.
The firm raised its price target to $91 from $85, noting that Lam’s fiscal second-quarter results showed "slight beats in both Systems and CSBG," while NAND sales more than doubled quarter-over-quarter to reach a two-year high.
The analysts acknowledged that Lam has been discussing the potential for installed base upgrades to drive NAND recovery for some time, but customer commentary had not been encouraging.
"Something clearly happened here; perhaps we have finally found bottom," Bernstein wrote.
The firm highlighted that while trailing node and China-related headwinds persist, the company is seeing strength in "leading edge growth" and new opportunities such as "moly, dry resist."
Gross margins came in at 47.5%, slightly ahead of guidance but down sequentially due to a decline in China mix, which now accounts for 31% of sales.
Bernstein expects a "strong" third-quarter performance, with projected revenue of $4.65 billion and gross margins improving to 48.0%, compared to Wall Street’s forecast of $4.33 billion and 47.1%.
Bernstein had previously preferred Applied Materials (NASDAQ:AMAT) over Lam due to its lower exposure to the weak NAND market and greater alignment with key industry trends like Gate-All-Around (GAA) and high-bandwidth memory (HBM).
However, the firm noted that if Lam’s NAND business is indeed recovering, "the rest of the company starts to look similar," with a more balanced China mix, solid GAA and packaging exposure, and valuations that are now converging with peers.
"We think risk-reward is skewing positive enough here; we upgrade LRCX to Outperform," Bernstein concluded.