Lam Research Plunges 5.65%—Why Are Investors Selling After Strong Earnings?

Summary
• Lam Research (LRCX) trades at $93.495, down 5.65% intraday after reporting Q2 FY2025 results that far exceeded estimates.
• Earnings beat of 31% YoY and revenue growth of 33.6% YoY failed to arrest the selloff, despite guidance above expectations.
• Semiconductors sector faces regulatory headwinds, with China’s AI chip scrutiny and U.S.-China trade tensions amplifying risk.

Amid a volatile trading session, Lam Research’s stock has plummeted to a 52-week low of $90.73, erasing nearly $5.6 billion in market value. The selloff defies the company’s robust financial performance and raises questions about sector-wide tailwinds and investor sentiment toward high-valuation tech plays.

Earnings Optimism vs. Valuation Realism
Lam Research’s Q2 FY2025 report was a triumph: revenue surged 33.6% to $5.17 billion, EPS jumped 31% to $1.33, and margins hit multi-year highs. Yet the stock’s 5.65% decline reflects a disconnect between short-term fundamentals and long-term valuation concerns. Analysts note that while the company’s 22.1x dynamic P/E ratio appears reasonable, its 31% earnings growth must be sustained to justify current levels. The selloff coincided with broader semiconductor sector jitters, as U.S. export controls on China and AI chip scrutiny intensify. Investors may be pricing in margin compression if demand for advanced-node tools slows or regulatory friction escalates.

Semiconductors Sector Mixed as AMAT Leads Sell-Off
The semiconductors sector remains under pressure, with Applied Materials (AMAT) down 6.24% as a proxy for industry-wide selling. While Lam Research’s earnings outperformed, its peers—such as Intel (-8%) and Micron (-5.9%)—highlight sector fragility. Regulatory risks, particularly China’s AI chip investigations and U.S. export restrictions, are overshadowing near-term results. The sector’s 1.96% intraday decline underscores investor caution, even as companies like Lam and TSMC raise sales forecasts.

Options and ETFs to Navigate Volatility
• MACD: 1.47 (bearish divergence from signal line 2.16)
• RSI: 43.36 (oversold territory, but bearish momentum persists)
• 200D MA: $80.07 (price below trend, bearish bias)
• Bollinger Bands: Price at 93.50 (near lower band 96.48, signaling potential rebound)

Lam Research’s technicals suggest a bearish short-term setup. Key support at 96.48 (Bollinger lower) and resistance at 99.43 (200D MA) define a tight trading range. The 52W low of $56.32 remains a distant floor, but near-term volatility is likely to persist amid sector headwinds. Aggressive short-term strategies may target options with high leverage and liquidity.

Top Options Picks:
• LRCX20250808P90 (Put, $90 strike, 2025-08-08 expiration):
- IV: 36.40% (moderate)
- Leverage Ratio: 134.01% (high)
- Delta: -0.22 (moderate sensitivity)
- Theta: -0.0056 (low time decay)
- Gamma: 0.0553 (high sensitivity to price swings)
- Turnover: $20.87 million (liquid)
- Price Change: +20.69% (bullish premium)
This put option offers leveraged bearish exposure with manageable delta, ideal for capitalizing on a potential breakdown below 90.00.
• LRCX20250808C93 (Call, $93 strike, 2025-08-08 expiration):
- IV: 36.02% (moderate)
- Leverage Ratio: 36.36% (moderate)
- Delta: 0.5778 (moderate bullish bias)
- Theta: -0.3105 (high time decay)
- Gamma: 0.0737 (high sensitivity)
- Turnover: $60.81 million (very liquid)
- Price Change: -66.14% (bearish premium)
This call offers a balanced risk-reward profile for a rebound above 93.00, though theta decay necessitates a swift move.

Payoff Scenario: In a 5% downside move to $88.82, LRCX20250808P90 would yield $11.18 per contract, while LRCX20250808C93 would expire worthless. Aggressive bears may consider LRCX20250808P90 into a breakdown below 90.00.

Backtest Lam Research Stock Performance
The backtest of LRCX's performance after a -6% intraday plunge shows favorable short-to-medium-term gains. The 3-Day win rate is 56.91%, the 10-Day win rate is 61.74%, and the 30-Day win rate is 64.95%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest period was 9.10%, which occurred on day 59, suggesting that the stock price was able to recover and even exceed its previous levels.

Act Now: Position for Sector Volatility
Lam Research’s selloff reflects a mix of sector-wide headwinds and valuation realism. While the company’s fundamentals remain strong, regulatory risks and margin concerns could prolong the decline. Traders should monitor the 96.48 support level and AMAT’s -6.24% move as sector barometers. For a bold move, consider LRCX20250808P90 if 90.00 breaks; for a rebound, watch 93.00. The key takeaway: volatility is likely to persist, and positioning with high-liquidity options offers tactical flexibility.