On Thursday, JPMorgan (NYSE:JPM) adjusted its stock price target for Lam Research (NASDAQ:LRCX) shares, raising it to $1,100 from the previous $950, while maintaining an Overweight rating on the stock. The firm's analyst cited Lam Research's strong performance in the June quarter, noting robust revenue, margins, and earnings per share results, along with guidance for the September quarter that JPMorgan considers conservative.
Lam Research's positive outlook is attributed to the anticipated growth in equipment spending fundamentals in the second half of the year and into calendar year 2025. The company's business profile has also improved due to slight increases in China spending.
The analyst expressed confidence in Lam's ability to outperform overall wafer fabrication equipment (WFE) growth this year, with projections for the systems business to increase by 15-17% year-over-year and services by 5%.
The firm's strong position in NAND/DRAM markets, expanding presence in advanced foundry/logic, and new opportunities in areas like advanced packaging and high-bandwidth memory (HBM) were highlighted as key drivers of growth.
The team at Lam Research is reportedly seeing strong demand for HBM DRAM and is on track to generate over $1 billion in revenue from advanced packaging/HBM this year, leveraging their leadership in through-silicon vias (TSV) and copper plating.
Moreover, Lam Research is expected to achieve another $1 billion in revenues from gate-all-around (GAA) technology due to its strong position in selective etch, atomic layer deposition (ALD), and patterning. The analyst noted increased confidence and backlog visibility for the next year as improvements in NAND/DRAM utilization continue.
In anticipation of intercepting multiple new technology inflections across memory and foundry/logic sectors in the coming years, Lam Research plans to maintain a higher research and development spending profile in calendar year 2024.
The company's forward revenue growth is expected to benefit from a higher mix of lower cost and variable manufacturing, especially with the new Malaysia factory coming into operation, which should contribute to gross margin improvements.
JPMorgan's revised outlook includes updated estimates for calendar year 2024 and introduces estimates for calendar year 2025, setting a price target for that year at $1,100. The Overweight rating was reiterated based on the firm's confidence in Lam Research's sustained earnings power and growth trajectory.
In other recent news, Lam Research Corporation (NASDAQ:LRCX), a leading provider of semiconductor manufacturing equipment, has been making significant moves in the industry. The company recently unveiled its advanced Lam Cryo 3.0 technology, designed to meet the growing demand for high-capacity and high-performance memory driven by the expansion of AI applications.
This development comes alongside Lam's optimistic revenue outlook for the September quarter, which surpasses analyst expectations due to heightened demand for AI-powered chips.
Lam Research has also announced a $10 billion share repurchase program, adding to the remaining $1.06 billion from a previous authorization. This decision aligns with the company's capital allocation strategy, which aims to return 75%-100% of free cash flow to shareholders.
Further, the company declared a 10-for-1 stock split, set to take effect after the market closes on October 2, 2024, in a bid to broaden participation in the company's employee stock plans across its global workforce.
Analysts from JPMorgan, Wells Fargo (NYSE:WFC), and Citi have all recently provided their insights on Lam Research. JPMorgan raised its price target for the company to $1,100 from the previous $950, maintaining an Overweight rating on the stock. Wells Fargo maintained its Equal Weight rating, while Citi reaffirmed its Buy rating on Lam Research.
These recent developments highlight Lam Research's strategic moves and the external factors influencing its operations. The company's progress is reflective of the broader industry trend, with escalating demand for high-performance computing and data centers boosting the market for memory semiconductors.
Still, Lam Research has been affected by U.S. restrictions on advanced chip shipments and chipmaking gear to China, initiated in 2022. This regulatory landscape continues to evolve as the U.S. seeks to widen chip equipment bans on China.
InvestingPro Insights
The recent price target adjustment by JPMorgan for Lam Research (NASDAQ:LRCX) to $1,100 aligns with the company's strong performance and growth prospects. Adding to this perspective, InvestingPro data shows that Lam Research has a market capitalization of $120.44 billion, reflecting its significant presence in the semiconductor industry. Despite a challenging market environment, evidenced by a revenue decline of 24.48% in the last twelve months as of Q3 2024, the company maintains a robust gross profit margin of 47.19%, underscoring its operational efficiency.
InvestingPro Tips further enrich our understanding of Lam Research's financial standing. With a 15.94% dividend growth in the same period, Lam Research has demonstrated its commitment to shareholder returns, raising its dividend for 10 consecutive years. Additionally, 20 analysts have revised their earnings upwards for the upcoming period, signaling confidence in the company's future performance. For investors seeking a deeper dive into Lam Research's prospects, there are 16 additional InvestingPro Tips available, offering a comprehensive analysis of the company's financial health and market position.
While the company trades at a high earnings multiple of 33.55, reflecting a premium valuation, the positive sentiment from analysts and the company's strategic positioning in the semiconductor sector provide a counterbalance to concerns over valuation. As Lam Research navigates the current fiscal year, investors will be watching closely to see how its strategic investments and market opportunities translate into financial performance.
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