Lam Research (LRCX): The Undervalued Engine of AI's Semiconductor Future

In the race to build the next generation of artificial intelligence, the spotlight often falls on software giants and cloud infrastructure providers. Yet behind every leap in AI performance lies a critical, often overlooked enabler: semiconductor manufacturing tools. Among the leaders in this space, Lam Research (LRCX) stands out as a cornerstone of AI infrastructure—a company whose advanced etch and deposition technologies are indispensable for producing the chips that power AI. Despite its pivotal role, LRCX remains undervalued relative to its growth trajectory and peers like KLA (KLAC). Here's why this stock is a rare “buy” for investors seeking to capitalize on AI's exponential growth.

Why LRCX Is Essential to AI's Semiconductor Future

LRCX's dominance in etching and deposition technologies places it at the heart of semiconductor innovation. These processes are critical for fabricating the nanoscale transistors required in advanced chips—such as those used in AI-driven applications like generative models, autonomous vehicles, and high-performance computing.

1. Etch & Deposition: The Building Blocks of AI Chips
2. LRCX's tools are used in over 90% of the world's leading-edge foundries, including TSMC and Samsung. These facilities are racing to shrink transistors to 3nm/2nm nodes—a technical feat that demands precision only LRCX's equipment can deliver.

3. For AI, smaller transistors mean higher performance and lower power consumption, enabling everything from faster training of neural networks to real-time inference in edge devices.

4. Advanced Packaging: The 3D Integration Revolution

5. AI chips increasingly rely on 3D integration (e.g., HBM, or High Bandwidth Memory), where multiple chips are stacked to boost data throughput. LRCX's SABRE 3D platform is the gold standard here, enabling the precise alignment and bonding required for this cutting-edge packaging.

6. Revenue from advanced packaging more than doubled in recent quarters, driven by AI's insatiable demand for HBM in data centers and GPUs.

7. NAND Flash: The Foundation of Data-Driven AI

8. LRCX's leadership in molybdenum (Mo) ALD deposition is critical for scaling NAND flash to 256- and 384-layer densities. As AI models grow larger, data storage and retrieval at scale depend on these advancements.

The AI Demand Tailwind: Underappreciated and Accelerating

LRCX's growth is not just cyclical—it's structurally tied to AI's exponential trajectory.

• HBM Adoption: HBM's role in AI chips is booming. NVIDIA's H100 and H200 GPUs, central to large language models, rely on HBM for 10x faster memory access compared to traditional DRAM. LRCX's tools are integral to HBM's production.
• Leading-Edge Foundries: TSMC's 3nm node, now powering Apple's M3 and AMD's latest GPUs, is 90% LRCX-equipped. As AI shifts to smaller nodes, LRCX's installed base ensures recurring demand for upgrades and maintenance.
• Global AI Infrastructure Spend: Analysts project AI-driven semiconductor capital expenditures to grow at a 20%+ CAGR through 2027, far outpacing the broader industry.

Valuation: LRCX Is Undervalued Compared to Peers

While LRCX trades at a premium to the semiconductor industry average, its growth profile and margins justify this valuation—and it remains cheaper than peers.

Metric	LRCX (Lam Research)	KLAC (KLA)	Industry Average
P/E (TTM)	22.6x	27.6x	24.3x
P/S (TTM)	6.0x	8.7x	2.9x
Gross Margin	48.2%	61.6%	32.1%
Revenue Growth	18.8% (2025 EPS growth)	11.0% (2025 EPS growth)	8.5%

Key takeaways:
- P/E and P/S: LRCX is 15% cheaper than KLAC on a P/E basis and 31% cheaper on P/S, despite faster revenue and EPS growth.
- Margins: While KLAC has higher gross margins, LRCX's 35% free cash flow margin (vs. KLAC's unstated but likely lower figure) ensures it can reinvest in R&D and dividends.
- Growth Disparity: LRCX's 2025 EPS growth of 18.8% outpaces KLAC's 11%, yet its valuation multiples are lower.

Risks, But Manageable Ones

• China's WFE (Wafer Fab Equipment) Spending: LRCX's China revenue is projected to stabilize at ~30%, down from prior peaks. However, its global installed base of 20,000+ tools ensures recurring service revenue, which is less cyclical.
• Semiconductor Cyclicality: The industry is cyclical, but LRCX's exposure to leading-edge logic (45% of revenue)—a segment with high barriers to entry—is less prone to downturns.

Investment Thesis: Buy LRCX for AI's Infrastructure Play

LRCX is a low-risk, high-reward bet on AI's future. Its undervaluation relative to growth, coupled with its irreplaceable role in semiconductor advancement, makes it a must-own stock for investors seeking to profit from AI's exponential growth.

Actionable Idea:
- Buy: Accumulate LRCX at current levels (~$74/share).
- Target: A 12-month price target of $90–$100, aligning with 2025 EPS growth and peer valuation multiples.
- Stop-Loss: Below $65 (20% downside), signaling a broader semiconductor downturn.

Conclusion

LRCX is not just a semiconductor toolmaker—it's the unsung hero of AI's infrastructure. With its technologies enabling the chips that will power the next decade of innovation, and valuation gaps relative to peers, this is a rare opportunity to invest in a proven leader at a discount. For investors willing to look beyond the headlines, LRCX offers a secure, scalable, and undervalued entry point into AI's future.

Disclosure: This analysis is for informational purposes only and does not constitute investment advice.