Why Lam Research Stock Jumped This Week

What happened

Shares of Lam Research (LRCX -1.92%) rose as much as 16.5% this week, according to data from S&P Global Market Intelligence. The semiconductor equipment company posted solid third-quarter earnings and revenue and gave its early outlook for 2023. As of the close on Thursday, Oct. 20, the stock is up 13% this week.

So what

On Oct. 19, Lam Research released its earnings for the three months ending in September. Revenue was $5.07 billion, beating analyst estimates by $160 million. Earnings were also solid, with non-GAAP (adjusted) earnings per share (EPS) of $10.42, beating analyst expectations by $0.88. Both these numbers being above analyst estimates is a big reason why Lam Research's stock is up so much this week. On top of this earnings beat, management gave out revenue guidance for the fourth quarter of $5.1 billion at the midpoint, which was handily above the $4.74 billion estimate from Wall Street.

Lam's stock has been hit hard this year, with shares down 37%. Investors have been worried about a collapse in semiconductor demand and the U.S. government's recent export ban to China. These solid earnings are helping to assuage these concerns. However, the company is still facing some major industry risks at the moment. Right now, management expects industry demand to be down 20% in 2023 compared to 2022, which could impact the demand manufacturers have for its equipment.

As well, 30% of Lam's revenue came from China in the third quarter. The U.S. government seems dead-set on crushing the Asian nation's domestic semiconductor industry and has recently put an export ban on products, including some that Lam Research sells. If this export ban goes further, Lam Research could see a big hit to its revenue, at least in the short term.

Now what

Lam's stock may be down this year, but the company has a fantastic track record of growth. Company revenue is up over 60,000% since going public a few decades ago, leading to stock returns of over 15,000% (excluding dividends), which is well ahead of the broad indices. Its dividend currently yields just under 2%, with its dividend payout per share steadily growing over the past few years.

China and industry demand may hurt Lam Research over the next year or so. But over the long term, the company has shown it can put up phenomenal results for shareholders.