The AI Semiconductor Supercycle: Why Pick-and-Shovel Players Like Lam Research and Micron Are Undervalued Gems in 2026

The semiconductor industry is entering a transformative phase driven by artificial intelligence (AI) and high-performance computing (HPC). As global demand for AI infrastructure surges, companies positioned as "pick-and-shovel" players-those supplying essential tools and materials to the semiconductor ecosystem-are emerging as undervalued gems. Lam Research (LRCX) and Micron Technology (MU) stand out in this category, offering durable cash flows, strategic exposure to constrained supply chains, and lower volatility compared to chip designers like NVIDIA and AMD.

Strategic Positioning in the AI Semiconductor Supply Chain

Lam Research and Micron occupy distinct but complementary roles in the AI semiconductor supply chain. Lam Research, a leader in wafer fabrication equipment, provides mission-critical tools for etch, deposition, and advanced packaging processes. These tools are indispensable for manufacturing cutting-edge chips, including those used in AI accelerators and high-bandwidth memory (HBM). In Q3 2025, Lam reported $5.32 billion in revenue, a 27.7% year-over-year increase, driven by robust demand for AI infrastructure. Its dominance in etch tools (39% market share) and deposition equipment (17% market share) underscores its pivotal role in enabling next-generation semiconductor production.

Micron, meanwhile, is a key supplier of memory chips, particularly DRAM and NAND, which are critical for AI workloads. The company's strategic pivot to enterprise and automotive markets has enhanced its resilience amid cyclical downturns. In Q3 2025, Micron's revenue surged 46% year-over-year, with non-GAAP EPS rising 157%. Its HBM3E products, which power NVIDIA's GeForce RTX 50 Blackwell GPUs, highlight its direct alignment with AI demand. Analysts project Micron's revenue to grow 50% in 2026, fueled by rising prices and increased demand for HBM in data centers.

Explosive AI Infrastructure Spending and Supply Constraints

The AI semiconductor supercycle is being propelled by explosive spending on data centers, edge computing, and advanced manufacturing. According to industry projections, the semiconductor market is expected to exceed $1 trillion by 2030, with wafer fab equipment sales growing at double-digit rates in 2026. Lam Research is a primary beneficiary of this trend, with its advanced packaging solutions and gate-all-around node tools in high demand. The company's 2025 revenue reached $18.4 billion, reflecting its ability to capitalize on the AI-driven capital expenditure boom.

Micron, on the other hand, is navigating a global memory chip shortage driven by surging demand for HBM. This shortage is expected to drive up prices for DRAM and NAND, creating a favorable supply-demand imbalance. Unlike chip designers, which face intense competition and margin pressures, Micron's pricing power is bolstered by its role as a supplier of commoditized but essential components. For instance, its HBM4E solution is already sold out for 2026, ensuring strong revenue visibility.

Durable Cash Flows and Lower Volatility

While chip designers like NVIDIA and AMD are celebrated for their AI-driven growth, pick-and-shovel players like Lam and Micron offer more durable cash flows and lower volatility. Lam Research's gross margin of 50.6% and operating margin of 35% in Q1 2026 demonstrate its financial strength. Its beta of 1.78 over the past 60 months indicates moderate volatility compared to peers. Micron, despite a beta of 1.55–2.12, benefits from diversified client exposure across enterprise, automotive, and AI markets. This contrasts with chip designers, which face higher volatility due to their direct exposure to end-market demand swings and competitive dynamics.

For example, NVIDIA's valuation appears stretched, with a price-to-earnings growth (PEG) ratio of 0.6x, while AMD's stock price surged 82% in 2025 amid intense competition. In contrast, Lam and Micron's cash flows are less susceptible to short-term demand fluctuations, as their products are essential inputs for semiconductor manufacturing. This creates a more stable revenue base, even as the industry cycles through periods of overinvestment and correction.

Conclusion: Undervalued Gems in the AI Era

As the AI semiconductor supercycle accelerates, Lam Research and Micron are poised to outperform chip designers by leveraging their strategic positions in the supply chain. Lam's leadership in wafer fabrication tools and Micron's dominance in memory chips position them to capture outsized returns from AI infrastructure spending. Their exposure to constrained supply dynamics and durable cash flows further insulates them from the volatility that plagues pure-play chip designers. For investors seeking long-term growth with lower risk, these pick-and-shovel players represent compelling opportunities in 2026.