LRCX Lam Research
Wide-moat etch/deposition leader, but 25% implied growth is fantasy for a cyclical equipment business.
The business
Lam Research designs and manufactures wafer fabrication equipment — primarily etch, deposition, and clean tools — sold to memory and logic chipmakers. Revenue is highly cyclical, driven by customers' capital expenditure cycles and technology node transitions.
Quality gate · 94/100
Moat & management
| Moat | wide moat |
| Source | switching costs |
| Trajectory | stable |
| Management | excellent |
Once a fab qualifies Lam's etch and deposition tools into a process flow, switching costs are enormous — requalification can take quarters and risk yield. Deep accumulated IP in plasma etch and 3D NAND deposition reinforces this. However, the semiconductor technology roadmap shifts rapidly, and Lam's lead is maintained through continuous R&D rather than an unassailable structural position.
Net cash balance sheet, 92% FCF conversion, and a 2.1% annual share reduction signal disciplined capital allocation. Management buys back stock aggressively but has avoided value-destroying M&A.
Owner-earnings inputs
| Owner earnings (TTM) | 4.89B |
| Owner-earnings yield | 1.3% |
| Free-cash-flow yield | 1.3% |
| Growth used (normalized) | 9.0% |
| Market-implied growth (reverse DCF) | 25.0% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 13.1% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 5.25B | 9.0% | 4.64B |
| 2 | 5.70B | 8.6% | 4.46B |
| 3 | 6.16B | 8.1% | 4.26B |
| 4 | 6.64B | 7.7% | 4.06B |
| 5 | 7.12B | 7.3% | 3.85B |
| 6 | 7.61B | 6.9% | 3.64B |
| 7 | 8.10B | 6.4% | 3.42B |
| 8 | 8.58B | 6.0% | 3.21B |
| 9 | 9.06B | 5.6% | 3.00B |
| 10 | 9.53B | 5.1% | 2.78B |
| 11 | 9.98B | 4.7% | 2.58B |
| 12 | 10.41B | 4.3% | 2.38B |
| 13 | 10.81B | 3.9% | 2.18B |
| 14 | 11.18B | 3.4% | 2.00B |
| 15 | 11.51B | 3.0% | 1.82B |
Key risks
- Semiconductor equipment is deeply cyclical; current elevated capex may normalize
- China export restrictions could remove a significant revenue stream
- 3D NAND scaling approaching physical limits could reduce etch/deposition step intensity growth
Catalysts
- AI-driven demand for HBM and advanced logic requiring more equipment per wafer
- 3D NAND layer count increases multiply etch and deposition tool demand
- Advanced packaging and hybrid bonding expanding Lam's addressable market
Recent news
score · 8 articles
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⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Net cash 1.8B credited to value (interest stripped from owner earnings to avoid double-counting). · Price pays for ~25%/yr owner-earnings growth over 15y (reverse DCF); model credits 9%. · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.