In the week leading up to its fiscal year 2025 first-quarter earnings report, Lam Research Corporation NASDAQ:LRCX stock fell nearly 15%. Additionally, analysts had lowered their price targets for LRCX stock due to concerns about slowing growth, which would make it difficult for LRCX stock to outperform the market.
However, the stock price reversed in early morning trading after the company announced its financial results, rising more than 4%. Is this a temporary release or a sign that Lam Research may be proving the naysayers wrong?
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Before looking at what the financial report tells us, it’s important to understand what the company does and why it matters to investors. Semiconductors have been a volatile sector for the past four years, with mostly upward trends. This is because it is a sector that provides the “picks and shovels” that allow companies to build artificial intelligence (AI) infrastructure.
Lam Research manufactures wafer fabrication equipment and related services needed by chip manufacturers. In a world where more chips are needed in less space, Lam’s etch and deposition machines allow chips to be stacked vertically.
Current state of lamb research
$77.68 +1.11 (+1.45%)
(As of October 25, 2024 Eastern Time)
52 week range $57.44
▼
$113.00
Dividend yield 1.18%
PER26.79
Target price $97.03
A bullish reversal is possible
Analysts aren’t necessarily bearish on LRCX stock. Heading into earnings, the consensus price target for the stock was $141.28. This suggests an increase of over 90% over 12 months. And this comes after the company completed a 10-for-1 stock split in October.
But these concerns were not without some merit. Prior to the fourth quarter of fiscal year 2024, Lam Research had several quarters with year-over-year (YOY) declines in revenue and profit. This is not surprising given where the company is in the semiconductor chain.
Many semiconductor manufacturers had expected growth to slow. The fewer picks and shovels a company needs, the fewer handles and shovels it needs.
However, the trend changed in Q4 FY24. This came at a time when many chipmakers were beginning to revise upward their internal forecasts. But as investors know, patterns don’t form just once. That’s why it’s important that Lam Research posted year-over-year sales and earnings growth for the second consecutive quarter.
Lam Research Co. (LRCX) Price Chart for Saturday, October 26, 2024
Artificial intelligence continues to provide tailwinds
The headline number in the company’s earnings report was revenue of $4.17 billion, higher than analysts’ expectations of $4.06 billion. Ultimately, Lamb delivered earnings per share (EPS) of 86 cents, beating expectations of 81 cents.
However, the company does not plan to release full-year guidance until next quarter. The company expects second-quarter sales of $4.3 billion, higher than the current estimate of $4.22 billion. The company now expects EPS of 87 cents, beating expectations of 85 cents.
And demand for AI applications will continue to drive this growth, according to Timothy Archer, president and CEO of Lam Research. Although the company did not provide specific numbers, it expects significant growth in areas such as advanced logic nodes (NAND) and high-bandwidth memory (HBM).
LRCX stock may have confirmed support
Lam Research’s analyst forecasts published on MarketBeat show that the analysts wasted no time in doubling down on their outlook. Since that report, 4 analysts have lowered their price targets on LRCX stock, with 2 of them below the consensus price of $97.29. This price target is supported by the company’s forward price/earnings ratio (P/E) of approximately 20 times, placing it in the bottom half of technology stocks.
However, while it may be too early to take a full look at the stock, note that the post-earnings rally could see the stock price confirm a double-dip near $72 per share. It is important to do so. The question is whether stock prices will continue to rise. The stock briefly rose to nearly $78 in pre-market trading, but has since returned to around $75.
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