Shares of Lam Research (LRCX 0.18%) have shot up 20% since the beginning of July in tandem with the broader recovery in semiconductor stocks, which is evident from the 20% rally in the PHLX Semiconductor Sector index.

Lam's rally seems sustainable, as its recent quarterly results indicate. Lam released fiscal 2022 fourth-quarter results (for the three months ended June 26) on July 27, reporting a nice increase in its top and bottom lines. Even better, the semiconductor equipment supplier's guidance indicates that things are about to get better.

Let's look at the reasons why Lam Research stock is built for more upside.

Healthy semiconductor demand drives Lam Research's growth

Lam Research sells wafer and fabrication (WFE) equipment that is used by foundries, memory manufacturers, and logic manufacturers to fabricate integrated circuits. The company provides key components and services such as deposition, etch, and clean to its customers to help them manufacture chips.

The booming demand for semiconductor manufacturing equipment has become a massive tailwind for Lam Research. The company posted $4.64 billion in revenue last quarter, an increase of 12% over the prior-year period. Adjusted earnings increased to $8.83 per share from $8.09 per share in the year-ago period. Analysts were expecting $7.34 per share in earnings on $4.22 billion in revenue.

Lam's stronger-than-expected results were driven by a combination of improved supply chain conditions and robust demand, as CEO Tim Archer explained on the July earnings conference call. It is worth noting that Lam has been severely hamstrung by a lack of components, which has kept it from fulfilling orders and recognizing revenue.

For instance, Lam's fiscal Q3 revenue was up just 5.5% year over year, while earnings fell. But the latest report shows that things are now falling into place for the company. What's more, Archer expects the supply chain to improve further in the current quarter, which explains why the company has delivered solid guidance for the current quarter.

Lam expects $4.9 billion in revenue this quarter at the midpoint of its guidance range, along with adjusted earnings of $9.50 per share. Those numbers are well ahead of analysts' expectations of $8.82 per share in earnings and $4.63 billion in revenue. Lam delivered $8.36 per share in earnings on $4.3 billion in revenue in the September quarter last year, so its guidance points toward healthy double-digit growth.

More importantly, Lam exited last quarter with a deferred revenue balance of $2.2 billion, an increase of $129 million sequentially. This suggests that demand for semiconductor manufacturing equipment is still robust, even though industry bigwigs such as Intel and Nvidia are suggesting a slowdown in chip demand as sales of personal computers (PCs) have taken a big hit and the demand for graphics cards has weakened.

However, investors shouldn't forget that chips are now used in a variety of applications beyond personal computers and graphics cards. The appetite for chips from the automotive, data center, and Internet of Things markets remains robust, and it has been enough to offset the weaknesses elsewhere. That's probably the reason why WFE equipment spending is expected to increase nearly 15% in 2022 to $118 billion, followed by another increase next year to almost $121 billion.

All this indicates that Lam Research could continue to enjoy solid demand for its semiconductor manufacturing equipment. More importantly, this space is expected to keep growing at a consistent pace in the long run and hit nearly $142 billion in annual spending by 2030. So Lam Research is a company that seems built for secular long-term growth, which is why investors may want to buy it right away.

Lam Research stock is a steal right now

Lam Research stock is trading at just 14.5 times trailing earnings. That represents a discount to the S&P 500's earnings multiple of 23, and it means that investors looking to add a semiconductor stock to their portfolios are getting a good deal on Lam right now.

It is also worth noting that Lam sports a dividend yield of 1.26%. The company has raised its dividend for seven consecutive years, and there is room for further growth here, as its payout ratio of 16% suggests. As such, Lam Research could give investors a nice mix of stock upside and a steady stream of dividend income, which makes the stock a screaming buy at its current valuation.