Shares of semiconductor equipment supplier Lam Research (LRCX +0.06%) lost ground Thursday morning, and were trading down 4.7% as of 12:25 p.m. ET. This is notable as Lam is missing out on the rebound many stocks are experiencing following Wednesday's market rout.
Lam's decline was set off by the tepid outlook that one of its key customers delivered Wednesday afternoon. But for investors, this share price dip in a company that's positioned to be a long-term beneficiary of the AI revolution may offer an opportunity to buy rather than a reason to stay away.
NASDAQ: LRCX
Key Data Points
Micron's outlook disappointed
After the market closed Wednesday afternoon, Micron Technology (MU +0.49%) reported its fiscal 2025 first-quarter earnings. While its results were relatively in line with expectations, its outlook for the fiscal second quarter disappointed the market mightily. Micron's management noted that the AI data center build-out is still going strong; however, the consumer-oriented PC and smartphone segments were weak, as they have been since mid-2022. PC and phone memory chips are still large parts of Micron's business, so its fiscal second-quarter guidance was well below expectations.
Moreover, Micron specifically pointed to NAND flash memory as being especially weak, while noting that the DRAM memory market was stronger. This may be why Lam is faring worse than other equipment suppliers on Thursday; it has traditionally dominated the semiconductor capital equipment space in the niche related to the vertical stacking of NAND modules.
Micron said that it would reduce its capital expenditures for NAND manufacturing this year, and also said that the pace of NAND investments across the industry will need to slow for chipmakers to attain better profitability. Given that it's viewed as the NAND equipment leader, it's no surprise to see Lam Research falling in the wake of that commentary.
But this may be an opportunity
While the situation may seem dire, investors should appreciate that investments in NAND manufacturing have been extremely low for several years, and that Lam has repositioned its business to become more balanced between the NAND, DRAM, and logic markets. In fact, last quarter, NAND flash memory equipment only accounted for 11% of Lam's revenue. DRAM memory, which appears to still be strong, made up 24%, and logic and foundry sales combined to make up 65% of sales.
So while its near-term outlook may look unimpressive, Lam's results shouldn't be at risk of too much of a decline, although its growth may be a little slower. Trading at 22 times earnings, Lam's stock isn't at a demanding valuation, given that the AI build-out appears to be continuing.
