After a rough 2024 that saw Lam Research Corporation LRCX decline 7.8%, the stock has staged an impressive comeback in 2025, rising 15.5% year to date. This rebound has placed Lam ahead of key semiconductor peers like Marvell Technology, Inc. MRVL, Broadcom Inc. AVGO and Cirrus Logic, Inc. CRUS, all of which have struggled to match its momentum.

YTD Price Return Performance

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While the broader Zacks Electronics – Semiconductors industry has declined 6% this year, Lam Research’s strong market positioning and execution have fueled renewed investor confidence. The key question for investors now is whether they should hold on to their gains or book profits.

LRCX’s Strong Q2 Performance Reinforces Stability

Lam Research posted robust financial results for the December 2024 quarter, beating analyst expectations for both revenues and earnings. The company reported revenues of $4.38 billion, up 16.4% year over year, and earnings per share (EPS) of 91 cents, exceeding estimates by 4 cents. This performance was driven by strong demand across the DRAM and Foundry Logic segments, with system revenues reaching record highs despite a muted NAND spending environment.

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The company’s gross margin for the quarter stood at 47.5%, reflecting a 70-basis point sequential decline but remaining above management’s midpoint guidance of 47% (+/-1%). Lam Research’s continued focus on cost efficiency and scaling its operations has helped offset customer mix challenges. The company expects revenues of $4.65 billion (+/- $300 million) for the March quarter, signaling continued stability in its core business.

Datacenter and AI Trends: Long-Term Catalysts for LRCX

Lam Research is benefiting from the rapid expansion of AI-driven semiconductor demand, particularly in high-bandwidth memory (HBM) and advanced packaging technologies. AI workloads require more advanced chips, which drive demand for Lam Research’s deposition and etch solutions.

The company’s shipments for gate-all-around nodes and advanced packaging exceeded $1 billion in the calendar year 2024, and management expects this figure to surpass $3 billion in 2025. Additionally, customer migration toward backside power distribution and dry-resist processing presents further growth opportunities. These factors suggest Lam Research is well-positioned to capitalize on the next wave of AI-driven semiconductor investments.

Lam Research’s Strategic Investments Aid

Lam Research’s continued investment in research and development is yielding tangible results. The company’s recently introduced Cryo 3.0 technology has demonstrated best-in-class performance for high-aspect-ratio dielectric etch applications. Meanwhile, its Aether dry-resist solution has been selected as the production tool of record for high-bandwidth DRAM at a leading memory manufacturer.

Moreover, Lam Research has expanded its manufacturing footprint in Asia, improving cost efficiencies and responsiveness to customer demand. These strategic moves have allowed the company to deliver a 160-basis point operating margin expansion in 2024 despite industry-wide challenges.

NAND Recovery Could Be a Game Changer for LRCX

After a prolonged downturn, NAND spending is showing signs of a rebound. While industry-wide NAND investments remain focused on technology upgrades rather than capacity expansion, Lam Research is well-positioned to benefit. The company’s patented molybdenum (Moly) and carbon gap fill solutions are gaining traction, and management expects these technologies to drive several hundred million dollars in NAND-related revenues in 2025.

With two-thirds of the NAND industry still operating below 200-layer technology, Lam Research’s customers are actively transitioning to higher-layer counts. This trend supports a multi-year upgrade cycle, which should contribute to Lam Research’s revenue trajectory.

LRCX Valuation: Trades at Attractive Multiple

Despite its recent rally, Lam Research’s valuation remains reasonable. The stock currently trades at a forward price-to-earnings (P/E) ratio of 22.22, which is significantly lower than the industry’s 27.53. The company’s discounted valuation multiple aligns with its long-term growth potential.

Forward 12-Month P/E Ratio

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Additionally, LRCX currently trades above the 50-day and 100-day moving averages, signaling a bullish trend in the near term.

Technical Indicator Signals Bullish Trend

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Near-Term Risks Persist for Lam Research

While Lam Research’s long-term prospects are strong, some near-term challenges warrant caution. One of the primary concerns is the potential for escalating U.S.-China trade tensions, which could impact its sales in China, a market that represents a significant portion of its revenues.

China revenues accounted for 31% of total revenues in the second quarter of fiscal 2025, down from 37% in the prior quarter. Also, it disclosed that $700 million in expected revenues from restricted Chinese customers will not materialize in 2025, creating a significant sales gap. Given the ongoing restrictions on technology exports to China, Lam faces heightened risk should additional measures be imposed.

Another major concern for Lam Research’s prospect is the declining demand for its mature-node semiconductor equipment. Its foundry revenues declined from 41% of system sales in the first quarter of fiscal 2025 to 35% in the second quarter, reflecting weaker demand for mature-node manufacturing.

A slowdown in analog and microcontroller semiconductor investments, particularly outside China, has dampened spending in this segment. Companies like Taiwan Semiconductor Manufacturing Company (“TSMC”) have signaled a cautious approach to mature-node spending, which could limit growth in Lam Research’s foundry and logic business. With leading-edge spending concentrated in the hands of a few dominant foundries, such as TSMC, Samsung and Intel, any delays in their technology roadmaps or budget constraints could impact Lam Research’s revenue trajectory.

Conclusion: Hold Lam Research Stock for Now

Lam Research’s 15.4% year-to-date rally is backed by strong financial performance, strategic market positioning and growing demand for AI-driven semiconductor technologies. While weakening demand for mature-node semiconductor equipment and geopolitical risks persist, the company’s long-term outlook remains highly promising. Investors who have ridden the recent rally may consider holding their positions, as Lam’s growth story is far from over.

Lam Research carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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