Investors on the hunt for stocks capable of taking advantage of the artificial intelligence (AI) chip boom probably don’t have Lam Research (NASDAQ: LRCX) on their radar. However, a closer look at the company’s prospects and the potential acceleration in its growth indicates that it really should be. This chip stock is on its way to capitalizing on a hot technology trend.
Still, a look at the stock’s performance of late shows that some investors are clued into its potential. Shares of Lam Research headed higher after the company released fiscal 2024 second-quarter results (for the three months ended Dec. 24, 2023) on Jan. 24. The stock now sits on impressive stock price gains of 75% in the past year. That may seem a tad surprising, considering the pace at which its revenue and earnings declined this past year.
LRCX Revenue (TTM) Chart
What they likely are discovering is that Lam Research’s latest results indicate it is on the cusp of a turnaround. Let’s check out the reasons why this semiconductor company could sustain its impressive stock market rally.
A turnaround in semiconductor equipment spending will power Lam Research’s growth
Lam Research reported fiscal Q2 revenue of $3.76 billion, down 29% from the year-ago period. The company’s non-GAAP earnings shrunk to $7.52 per share from $10.71 per share in the same quarter last year. This sharp year-over-year decline can be attributed to weak spending on semiconductor equipment in 2023, especially for memory chips.
Semiconductor equipment spending was forecast to drop 15% in 2023 to $84 billion. The memory equipment market took a bigger hit as spending was down 46% last year. Lam Research gets 48% of its revenue from selling memory equipment, so the big decline in this market owing to an oversupply of memory chips weighed heavily on the company’s financial performance.
The good news is that Lam Research’s guidance for the current quarter indicates that its financial performance is set to improve remarkably. The company guided for $3.7 billion in revenue and $7.25 per share in adjusted earnings for the ongoing…
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