Investing.com -- Oppenheimer initiated coverage on Lam Research Corp (NASDAQ:LRCX) with an Outperform rating and a price target of $95 given the semiconductor equipment maker’s dominant position in etch technology and its growth potential from NAND upgrades and AI-related demand.
Lam, one of the top five wafer fabrication equipment companies, is poised to benefit as NAND enters a large upgrade cycle and DRAM remains a core bottleneck for AI compute.
Oppenheimer projects Lam’s earnings per share to double to $6-7 by 2028 from 2024, driven by advanced technologies such as Syndion and SABRE 3D used in through-silicon via processes for high-bandwidth memory and GPU packaging.
“LRCX is currently down ~30%, which we think creates a nice buying opportunity if no recession,” as it’s outperformed the S&P 500 in 7 of the last 10 years, 35% over 5 years, and 240% over 10 years, Oppenheimer noted.
Lam’s growth outlook is underpinned by a 14% revenue and 24% EPS compound annual growth rate since 2013, with a target to reach $26 billion in revenue and $6.50 EPS by 2028.
Growth is expected to come from expanding its served available market in etch and deposition. Adoption of new technologies such as gate-all-around, backside power, and advanced packaging and increasing revenue from its installed base of 96,000 tools through its customer support business group.
Despite its strong position, Lam faces potential headwinds, including economic uncertainty, U.S. restrictions on China, and fears of peaking AI capital expenditure, as highlighted by recent data center cancellations by Microsoft (NASDAQ:MSFT).
“In worst case, expensive semicap tools are vulnerable to short-term budget cuts during downturns,” Oppenheimer cautioned, noting Lam’s historical volatility, with average peak-to-trough declines of 65% in past downturns.
Lam’s balance sheet remains robust with ~$700 million in net cash and a ~30% free cash flow margin. The company has committed to returning 75-100% of its free cash flow to shareholders through a $10 billion buyback program, reducing share count by ~3% annually.
Lam trades at 20x FY26 earnings estimates, a 5% discount to the S&P 500, which Oppenheimer sees as attractive given its historical trading range and high earnings quality.