Untapped Market Potential for AI Stocks
The semiconductor sector has experienced a resurgence with the advent of the AI era. AI’s reliance on powerful chips is well-established, as they provide the computational strength needed for processing vast amounts of data and conducting intricate calculations within the AI realm. While names like Nvidia (NVDA) are revered in the semiconductor industry, the Taiwan Semiconductor Manufacturing Company (TSM), also known as TSMC, plays a crucial role in the global tech supply chain. TSMC is renowned for manufacturing chips for tech giants like Apple (AAPL), Nvidia, Advanced Micro Devices (AMD), and Qualcomm (QCOM).
Expanding Horizons Beyond Chipmakers
The AI boom isn’t confined to chip manufacturers alone. Even companies connected to the sector stand to gain from this evolving trend in the long term. Lam Research (LRCX) is a prime example, as a leading provider of wafer fabrication equipment and services to the semiconductor industry. The market outlook is optimistic for both TSM and LRCX, with consensus forecasts hinting at double-digit growth for these stocks in the upcoming year.
#1. Lam Research Stock Overview
Lam Research (LRCX) specializes in cutting-edge wafer fabrication equipment and services that facilitate the production of smaller, more efficient devices. The company’s technology is instrumental in developing advanced chips.
Current Financial Picture of Lam Research
Valued at $102.5 billion, Lam Research has seen a 1.3% increase year-to-date, compared to the S&P 500 Index’s impressive 20% surge. The company’s recent financial performance has been robust, driven by the soaring demand for semiconductors across various industries. In the quarter ending June 30, total revenue climbed by 2.1% to $3.87 billion, while adjusted earnings per share (EPS) saw a 4.5% rise to $8.14 per share.
Staying Ahead in the Semiconductor Arena
Despite the cyclical nature of the semiconductor industry, Lam Research remains at the forefront with its etch and deposition technologies, crucial stages in semiconductor manufacturing. Notably, systems revenue, accounting for 56% of total revenue, saw a substantial 26.8% growth in the June quarter.
The Dividend Advantage
Lam Research is a dividend stock boasting an annualized forward yield of 1.17%, slightly below the tech sector average of 1.37%. The company’s forward payout ratio of 25.8% indicates the sustainability of its dividends. Having raised its quarterly dividend by 15% recently, Lam Research is poised for further growth.
The Future Landscape of Semiconductor Industry
The surge in demand for advanced computing, AI, cloud services, electric vehicles (EVs), and the Internet of Things (IoT) is expected to propel rapid growth in the global semiconductor industry. Lam Research, placed strategically as a vital supplier of essential manufacturing equipment, is well-positioned to reap the benefits of these upcoming trends.
Predicted Earnings Growth and Analyst Insights
Analysts foresee an 18.1% increase in Lam stock earnings for fiscal year 2025 and a further 27.4% rise in fiscal year 2026. With a forward earnings multiple of 21.6, Lam appears to be a sensible investment.
Wall Street Sentiment and Growth Potential
Wall Street’s view on LRCX stock is a “moderate buy.” Among the 27 analysts covering the stock, 16 recommend it as a “strong buy,” two rate it a “moderate buy,” and nine suggest holding. The average analyst target price of $1,040.92 implies a 31% upside potential, forecasting a potential surge of up to 66% to $1,325 over the next year.