How Lam Research Stock Gets To $200

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Lam Research (NASDAQ: LRCX), a prominent supplier of equipment for chip fabrication, is poised to gain from the increasing capital expenditures driven by the burgeoning generative artificial intelligence industry. While AI leader Nvidia (NASDAQ: NVDA) grabs attention with its stock price soaring more than 3 times over the last two years and its valuation approaching $4 trillion, less known companies like Lam play an essential role in the manufacturing of the AI chips that Nvidia markets. These stocks may provide a more stable value with significant potential for upside.

The data is persuasive. According to SEMI, capital expenditure on advanced chip-making equipment is expected to nearly double from 2023 to 2028, and global capex spending is anticipated to exceed $100 billion in 2025 alone. Lam, which focuses on deposition and etching equipment—two of the foremost processes in chip production—may be well-positioned to seize a substantial portion of this investment. The company’s primary clients include industry titans like TSMC, Samsung, and Intel, establishing it as a key player in both the logic and memory sectors of the chip market. Although traditionally dominant in memory chips, Lam is broadening its footprint in advanced logic chips and packaging technologies—fields that are witnessing increasing demand as chip design complexity escalates. AI tasks require not just advanced processing power but also high-bandwidth memory (HBM) and intricate stacking architectures. For instance, the fabrication of HBM chips is three times more wafer-intensive than standard DRAM because of lower bit density and the requirement for 3D stacking. This results in a direct increase in demand for tools manufactured by companies like Lam.

How Lam Stock Can Reach $200

Whereas chip designers such as Nvidia have experienced skyrocketing valuations, Lam’s stock has lagged. Shares have decreased by approximately 9% over the past 12 months and presently trade at around 24 times forward earnings, while Nvidia trades at about 35 times. Indeed, the valuation disparity is partly attributable to Lam’s reliance on China, which represented 31% of revenues in the March quarter. Ongoing U.S. export restrictions have impacted this segment, likely restricting Lam’s capacity to capitalize on the substantial Chinese market. According to consensus estimates, Lam’s revenues are projected to grow by around 22% in FY25, although growth is expected to cool to roughly 2% in FY’26, in part due to these China-related challenges, with earnings also expected to remain flat.

Nonetheless, if heightened demand related to AI, combined with a possible relaxation of chip equipment export restrictions to China, leads to sustained revenue growth at FY’25 rates of about 22% annually over the next three years, Lam’s revenue could increase by around 1.8 times. Even if profit margins stay near current levels of 27% (as recorded over the first nine months of FY25), and if the valuation multiple rises to about 30 times (up from 24 times currently, a 1.25 times growth), the stock could potentially double from the current price of approximately $97 to over $200 per share.

Several scenarios could lead to this outcome. Last week, the U.S. and China established a trade framework that encompasses rare earth exports and a potential relaxation of technology restrictions. If this easing of tensions applies to chip equipment exports, companies like Lam might gain renewed access to a vital growth market, further enhancing revenues. Furthermore, the process of chip manufacturing is becoming increasingly capital-intensive, meaning that a larger portion of the chip’s expense is now equipment-related—a distinct advantage for companies like Lam. Additionally, advanced packaging methods, such as stacking and connecting multiple chips, which are already being used for AI tasks, should boost the demand for Lam’s high-end machinery.

Risks Also Exist

Certainly, Lam faces significant risks. Beyond the China issue, the memory chip arena, where Lam has historically excelled, is encountering pricing pressures. Flash memory prices have been declining due to decreased demand from consumer markets and capex in this sector has been subdued as key players reduce production. Additionally, geopolitical tensions, macroeconomic uncertainty, and U.S. tariffs could further obscure Lam’s short-term growth prospects. Although Lam is a highly specialized company with robust intellectual property, it may not enjoy the same protective barrier as a firm like ASML, which essentially has a monopoly over its trade of extreme ultraviolet lithography.

On the other hand, Lam faces numerous competitors, such as Applied Materials and Tokyo Electron, which also provide similar services. That said, the long-term upcycle appears to be secure. The global semiconductor market is forecasted to surpass $1 trillion in annual revenue by 2030, rising from approximately $624 billion in 2024 according to the Wall Street Journal. As chip manufacturers adopt next-generation technologies to enable AI, the demand for sophisticated manufacturing tools is likely to remain high, directly benefiting Lam.

While investing in a single stock like LRCX entails risk, the Trefis Reinforced Value (RV) Portfolio has outperformed its all-cap stock benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices), delivering robust returns for investors. What accounts for this? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks offered an adaptive means to maximize the advantages of favorable market conditions while curbing losses when markets decline, as outlined in RV Portfolio performance metrics.