Is It Too Late To Consider Lam Research (LRCX) After Its 207% One Year Surge?

• If you are wondering whether Lam Research is still fairly priced after its strong run, you are not alone. This article will focus squarely on what you might be paying for today.
• The stock last closed at US$244.25, with returns of 3.7% over 7 days, 12.1% over 30 days, 32.0% year to date, 207.0% over 1 year and 418.6% over 3 years. This naturally raises questions about how much of the story is already in the price.
• Recent coverage around Lam Research has focused on its role as a key supplier of semiconductor equipment and its position in the broader chip supply chain. This helps explain why investors watch it closely during industry upswings and slowdowns. These themes, along with attention on capital spending by major chipmakers, provide important context for the stock's recent moves.
• Even so, our valuation checks currently give Lam Research a score of 1 out of 6. This sets up a closer look at traditional valuation tools, how they compare for this stock, and a more complete way of thinking about value that we will come back to at the end.

Lam Research scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Lam Research Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model takes estimates of a company’s future cash flows and discounts them back to today, aiming to translate those future dollars into a single present value per share.

For Lam Research, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow stands at about $6.40b. Analysts provide explicit forecasts for several years, and Simply Wall St then extrapolates further out, with projected free cash flow of around $11.69b in 2030. These future cash flows are discounted back using the model’s assumptions to arrive at an estimated intrinsic value.

That process produces a DCF fair value estimate of about $116.77 per share, compared with the recent share price of $244.25. On these inputs, the model indicates the stock is about 109.2% above its estimated fair value, which suggests Lam Research is currently priced well above what this cash flow based model supports.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Lam Research may be overvalued by 109.2%. Discover 51 high quality undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Lam Research.

Approach 2: Lam Research Price vs Earnings

For profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings. It ties the share price directly to current earnings, which many investors watch closely when they want a quick sense of how “expensive” a stock is.

What counts as a normal or fair P/E often reflects what the market thinks about a company’s growth prospects and risk. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower multiple.

Lam Research currently trades on a P/E of 49.09x. That sits above the Semiconductor industry average of 43.33x, and is a little below the peer group average of 51.24x. Simply Wall St’s Fair Ratio for Lam Research is 43.15x. This is a proprietary estimate of what the P/E might look like given factors such as earnings growth, industry, profit margins, market cap and company specific risks.

Because the Fair Ratio blends these company level drivers, it gives a more tailored reference point than a simple comparison with peers or the broader industry, which can include businesses with very different profiles.

Compared with the Fair Ratio of 43.15x, the current P/E of 49.09x suggests Lam Research is trading above that tailored reference point.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Lam Research Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives, a simple way for you to attach a clear story about Lam Research to the numbers you care about, link that story to a forecast for revenue, earnings and margins, and see a Fair Value that you can compare with the current price. All of this is available within the Narratives feature on Simply Wall St’s Community page, where different investors can share views that range from a higher Fair Value of about US$325 to a lower one near US$115, and have those views automatically refreshed as new earnings, news and other data are added.

For Lam Research, here are previews of two leading Lam Research Narratives:

🐂 Lam Research Bull Case

Fair value in this bull case narrative: about US$274.42 per share.

At the recent price of US$244.25, this implies Lam Research is around 11% below this narrative's fair value estimate.

Revenue growth assumption in this narrative: 16.44% a year.

• AI related chip demand, government incentives and new fab projects are tied to higher equipment spending and a wider customer base for Lam Research.
• Process leadership and operational improvements support higher assumed profit margins and a stronger long term earnings profile.
• The fair value of about US$274.42 reflects analyst expectations for revenue growth, margins and a future P/E of 39.79x, using a 10.45% discount rate.

🐻 Lam Research Bear Case

Fair value in this bear case narrative: about US$115.00 per share.

At the recent price of US$244.25, this implies Lam Research is around 53% above this narrative's fair value estimate.

Revenue growth assumption in this narrative: 7.58% a year.

• Export controls, high China exposure and rising local competition are flagged as key risks to revenue durability and pricing power.
• Higher R&D and compliance costs, along with tougher sustainability rules, are expected to weigh on margins over time.
• The fair value of about US$115.00 reflects more cautious assumptions for growth, profitability and a lower future P/E of 28.35x, using a 10.61% discount rate.

Taken together, these two narratives bracket a wide range of outcomes, from Lam Research trading below one fair value estimate to trading well above another. Your job is to decide which story lines up better with how you see chip demand, regulation and competition, and whether the current US$244.25 share price feels closer to the bull case, the bear case, or somewhere in between.

Do you think there's more to the story for Lam Research? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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