What happened
Shares of Lam Research (LRCX -0.28%) surged 16.6% in July, according to data from S&P Global Market Intelligence. The semiconductor equipment manufacturer released its earnings report toward the end of the month, and it handily beat analyst expectations for both revenue and earnings per share. Moreover, management gave quarterly guidance that also exceeded analyst expectations.
So what
In the quarter that ended in June, Lam grew revenue 18.2% year-over-year, with adjusted earnings per share of $4.78, up 20% and trouncing expectations by a whopping $0.73. Furthermore, the company guided for revenue between $2.9 billion and $3.3 billion and EPS of $4.75 to $5.55, compared with the average analyst estimate of $2.72 billion in revenue and $4.12 in EPS.
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Though the COVID-19 pandemic has hit consumer demand in many ways, it has also increased reliance on digital products such as gaming, 4k streaming video, and 5G connectivity. These all require more memory and semiconductor content, which in turn means more spending for Lam's machines. CEO Tim Archer said on the conference call with analysts:
We expect our strong memory position to drive outperformance in share of WFE spent, as NAND and DRAM investment levels increase. Two, our actions to improve our Foundry/Logic SAM and share are yielding results, with our revenue growth in this segment outpacing Foundry/Logic WFE growth cycle-to-cycle. And three, our customer support business group at 34% of total revenues year-to-date is an increasingly greater contributor to our top line than in the past.
Now what
Lam Research was my top tech pick for June, and this is looking like a pretty good call after the stock's 18.2% gain in June and subsequent 16.6% return for July.
While Lam isn't exactly a screamingly cheap stock anymore, at 25 times earnings, long-term investors could still benefit handsomely over the long term with Lam stock. Management expects the digitization of the economy, combined with increasing complexity in chip manufacturing, to establish a new $60 billion base in semiconductor equipment spending going forward, up from the low-to-mid $50 billion range this year.
Management also still expects $30 to $32 in EPS by calendar 2023 or 2024, compared with a $380 price today. With a history of meeting or exceeding its own goals, Lam Research still looks like a good bet to benefit from the growth of semiconductor content over the coming decade.
