Lam Research (LRCX -0.13%) is a key supplier of equipment used in chip manufacturing. It has a long history of delivering solid business growth and market-beating returns for investors. But the company could be entering an even stronger growth phase as demand for artificial intelligence (AI) impacts the entire technology supply chain.
The stock has soared to new highs this year, but here's why it is poised for more highs in 2026 and beyond.
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Why the stock is a buy
Lam Research has historically generated most of its revenue from sales of equipment used to make memory components for smartphones and computers. But management noted that 35% of its revenue last quarter was from selling equipment to foundry customers, which would include Taiwan Semiconductor Manufacturing, a key supplier for Nvidia.
The company is targeting more than a 50% share of its addressable market, including the foundry and memory markets. It is competitively positioned to succeed. This is evident by its stellar financial results, where it is seeing record earnings and improving margins.
Analysts expect earnings to grow at an annual rate of 17% in the coming years. The stock is trading at 27 times next year's consensus estimate, which seems reasonable relative to its opportunity to serve the high-growth AI chip market.
