LRCX Earnings Preview: Investors on edge following ASML results
2min read Lam Research (LRCX) is set to report its Q1 earnings today, with expectations for a 23% year-over-year earnings increase to $0.81 per share, and a 17% rise in revenue to $4.06 billion. Last quarter, Lam provided guidance for EPS between $0.725-0.875 and revenue between $3.75-4.35 billion, so the results should fall comfortably within that range. However, investor sentiment remains cautious due to the broader concerns raised by ASML’s recent earnings, where the company projected a slower recovery outside of AI markets, a scenario that could affect Lam, given its similar exposure to market trends.
One key area to watch in the report is Lam’s wafer fab equipment (WFE) spending forecast, which was previously set at mid-$90 billion for 2024, with expectations of growth continuing into 2025. The company has emphasized that AI remains a significant driver of demand, particularly for GPUs and NAND. Any updates on AI-related investments, particularly in high-bandwidth memory, could help reassure investors amid concerns over a more gradual recovery in semiconductor spending across non-AI segments.
Lam’s exposure to China will also be a critical issue to monitor. The company derives around 25% of its annual revenue from China, and ongoing U.S.-China tensions have raised concerns about export restrictions that could impact future earnings. Lam has previously forecast normalized growth from China in the second half of 2024, but any negative revisions or additional guidance around China-related risks could weigh on investor sentiment.
Additionally, market volatility following ASML’s report has lowered expectations across the semiconductor sector, putting Lam under pressure. Investors will be looking for encouraging guidance for Q2 (December) and any signals of stability in the broader market. A positive outlook on China and upbeat commentary on AI and WFE spending could help counteract the broader concerns dragging down semiconductor stocks.
Lastly, while Lam Research faces near-term headwinds, analysts remain optimistic about its long-term prospects, particularly regarding memory improvements and AI-related growth. Companies like TSMC’s N2 node offer significant opportunities for Lam, and analysts have pointed out that NAND utilization improvements could lead to a WFE recovery in 2025.
Lam Research reported strong Q4 (June) earnings, with EPS of $8.17 beating expectations by $0.59, and revenue rising 20.7% year-over-year to $3.87 billion, slightly above the FactSet consensus. The company’s Q1 guidance for EPS was within a broad range of $7.25-8.75, in line with analyst expectations of $8.00, and revenue projections of $3.75-4.35 billion, closely matching the $4.03 billion consensus. The company also narrowed its wafer fab equipment (WFE) spending forecast to the mid-$90 billion range, driven by stronger-than-expected demand from domestic China and the growing influence of high-bandwidth memory.
LRCX remained optimistic about artificial intelligence (AI) as a long-term demand driver, with CEO Tim Archer highlighting the transformative potential of AI across industries. The company anticipated NAND revenue to have reached a low during the quarter, expecting gradual improvement into 2025 due to investments in AI-enabled edge devices. Additionally, Lam is confident about the overall demand dynamics in memory, specifically noting how AI will drive future demand for GPUs and low-power DRAM and NAND. The company also expects to benefit from customer technology upgrades after years of reduced capital expenditure and increased demand for spare parts.
Despite the positive outlook, LRCX shares faced selling pressure, driven by broader market corrections and concerns over U.S./China relations, which account for about a quarter of Lam's annual revenue. Uncertainty over the future of this relationship has raised concerns about potential growth slowdowns in China. Lam also acknowledged that it anticipates more normalized growth from China in the second half of 2024, potentially impacting margins. Peer companies, including KLAC, AMAT, NXPI, and ASML, also faced significant selling pressure, reflecting the broader market challenges.
