Lam Research Plunges 6.87% as Applied Materials' Guidance Sparks Sector Jitters

Summary
• Lam Research (LRCX) tumbles 6.87% intraday to $99.26, its lowest since May 2024
• Applied Materials (AMAT) warns of 8% Q4 revenue decline due to 'capacity digestion' in China
• Sector peers like KLA (KLAC) and ASML (ASML) also underperform amid macroeconomic uncertainty
• Options volatility surges with 20+ contracts trading at 30%+ implied volatility

Lam Research’s 6.87% intraday collapse has sent shockwaves through the semiconductor equipment sector, driven by Applied Materials’ bearish guidance on China demand. With the stock trading below its 52-week high of $108.02 and volume spiking to 17.1 million shares, investors are recalibrating risk in a market already grappling with Trump-era tariff fears and slowing fab spending. The move underscores a broader sector vulnerability as leading-edge customers delay capacity additions.

Applied Materials' Weak Guidance Casts Shadow Over Lam Research
Lam Research’s selloff is directly tied to Applied Materials’ Q4 forecast, which warned of $6.7 billion in revenue—a 8% drop from Q3—due to 'capacity digestion' in China and 'non-linear demand' from leading-edge customers. As a direct competitor in semiconductor manufacturing equipment, Lam faces similar headwinds in its core markets. Applied’s CEO Gary Dickerson explicitly cited China’s post-boom slowdown and U.S. tariff uncertainties as key risks, triggering a sector-wide reassessment. With Lam trading at 23.6x forward earnings, investors are now pricing in a prolonged industry correction.

Semiconductor Equipment Sector Reels as Applied Materials' Outlook Drags Peers
The semiconductor equipment sector is broadly under pressure, with Applied Materials (AMAT -13.8%) and KLA (KLAC -8.3%) both down sharply. Lam’s 6.9% decline aligns with the sector’s 10%+ selloff, reflecting shared exposure to China’s slowing fab spending and U.S. policy risks. ASML (ASML -1.5%) and Teradyne (TER -1.5%) have held up better, but their smaller China exposure may offer relative resilience. The sector’s 2025 growth narrative is now clouded by Applied’s warning, which highlights near-term demand saturation in key markets.

Options Playbook: Capitalizing on Volatility with LRCX20250822P95 and LRCX20250822C100
• 200-day MA: $81.38 (well below current price)
• RSI: 71.84 (overbought territory)
• MACD: 2.29 (bullish divergence)
• Bollinger Bands: Price at 99.66 (near lower band)

Lam Research’s technicals suggest a short-term bearish reversal despite long-term bullish trends. Key support levels at $99.66 (Bollinger lower) and $92.57 (lower band) could trigger further declines. The 2025-08-22 options chain offers two high-conviction plays:

• LRCX20250822P95 (Put, $95 strike):
- IV: 33.68% (moderate)
- Leverage: 249.53%
- Delta: -0.1514 (moderate sensitivity)
- Theta: -0.0062 (low decay)
- Gamma: 0.0471 (high sensitivity to price swings)
- Turnover: 25,830 (liquid)
- Payoff at 5% downside ($95): $0 (strike matched)
- Ideal for capitalizing on a $95 breakdown with high gamma amplifying gains.

• LRCX20250822C100 (Call, $100 strike):
- IV: 32.00% (moderate)
- Leverage: 54.54%
- Delta: 0.4997 (balanced exposure)
- Theta: -0.3214 (high decay)
- Gamma: 0.0844 (strong sensitivity)
- Turnover: 342,605 (highly liquid)
- Payoff at 5% downside ($95): $0 (out-of-money)
- Best for hedging a rebound above $100, leveraging high gamma for directional bets.

Aggressive bears should prioritize LRCX20250822P95 for a $95 breakdown, while cautious bulls may use LRCX20250822C100 as a hedge into a $100 retest.

Backtest Lam Research Stock Performance
The backtest of LRCX's performance after a -7% intraday plunge shows favorable short-to-medium-term gains. The 3-Day win rate is 55.33%, the 10-Day win rate is 56.35%, and the 30-Day win rate is 60.91%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest period was 8.12%, which occurred on day 59, suggesting that there is potential for recovery and even surpassing the previous high following a significant downturn.

Sector Jitters Intensify: Watch for $95 Breakdown or Trump Tariff Clarity
Lam Research’s 6.87% drop reflects a sector-wide recalibration of growth expectations, driven by Applied Materials’ China caution and Trump’s looming tariff threats. While technicals suggest a near-term bearish bias, the stock remains above critical support at $92.57. Investors should monitor the 2025-08-22 options expiration for liquidity clues and watch Applied Materials (AMAT -13.8%) as a sector barometer. A sustained break below $95 would validate a deeper correction, while a rebound above $100 could reignite long-term bullish momentum. Position sizing should reflect heightened volatility, with stop-losses near $92.57 to manage downside risk.