LRCX – Although management’s negative sentiment suggests the potential for near-term headwinds, market expectations are still too bearish, suggesting longer-term upside remains warranted

• Lam Research Corporation (LRCX:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 12.8x Uniform P/E. At these levels, the market has overly bearish expectations for the firm, and while management has concerns about equipment demand, costs, and productivity, potential macro tailwinds and competitive niches in flash storage suggest longer-term upside remains warranted
• Specifically, management may be exaggerating the strength of demand in the Chinese wafer fab equipment market, the longevity of their tools, and the production capabilities of their SABRE 3D system. In addition, they may lack confidence in their ability to sustain operating cash flow and Customer Support business revenue growth, maintain penetration and defense activity market share, and manage opex and R&D costs. Moreover, they may be concerned about their ability to decrease the number of compute cycles, improve 3D NAND productivity, and expand capacity for their installed base clients
• However, given long-term industry tailwinds and strong corporate performance, LCRX can likely outperform bearish expectations in the long run, indicating equity upside is warranted.