Lam Research Stock Trades at Low P/E: Should You Buy, Sell or Hold?

Lam Research Corporation LRCX, a leader in semiconductor fabrication equipment, currently trades at a forward 12-month price-to-earnings (P/E) ratio of 22.32, significantly lower than the Zacks Electronics – Semiconductors industry average of 32.9.

Forward 12-Month P/E Multiple

LRCX’s P/E multiple is also lower than some other semiconductor fabrication equipment providers, including KLA Corporation KLAC 25.17, ASML Holding ASML 26.39 and Applied Optoelectronics, Inc. AAOI. At present, KLA Corporation, ASML Holding and Applied Optoelectronics have a forward 12-month P/E ratio of 25.17, 26.39 and 39.33, respectively.

This relatively lower valuation suggests that Lam Research stock could be undervalued, particularly considering its growth potential in artificial intelligence (AI) and high-performance computing (HPC) markets.

Additionally, Lam Research trades at a discounted P/E multiple despite the stock having a tremendous run this year so far. LRCX shares have soared 37.3% year to date (YTD), outperforming the industry’s gain of 14.6%. Compared with rivals, it has outpaced ASML Holding and Applied Optoelectronics while underperforming KLA Corporation.

YTD Price Return Performance

This share price outperformance and a low valuation multiple raise the question: Should investors buy, sell or hold LRCX stock?

AI and Data Center Trends Drive LRCX’s Growth Story

Lam Research is benefiting from powerful shifts in semiconductor demand, particularly around artificial intelligence (AI) and data center chips. These advanced chips require complex manufacturing, and Lam Research provides the essential tools, like deposition and etching systems, needed to build them.

In 2024, Lam Research’s shipments for gate-all-around nodes and advanced packaging exceeded $1 billion, and management expects this figure to triple to more than $3 billion in 2025. Additionally, the industry’s migration to backside power distribution and dry-resist processing presents growth opportunities for LRCX’s cutting-edge fabrication solutions.

These trends are aiding Lam Research’s financial performance. In the fourth quarter of fiscal 2025, the company reported revenues of $5.17 billion, up 34% year over year, and non-GAAP EPS of $1.33, highlighting a 64% increase.

Lam Research Corporation Price, Consensus and EPS Surprise

Lam Research Corporation price-consensus-eps-surprise-chart | Lam Research Corporation Quote

Expanding its manufacturing operations in Asia has also helped the company lower costs and improve margins. In the fourth quarter of fiscal 2025, Lam Research’s non-GAAP operating margin rose to 34.4%, up 370 basis points from last year, which is impressive, considering the challenging macroeconomic environment.

Near-Term Challenges Persist for Lam Research

While Lam Research’s long-term growth outlook remains strong, several near-term challenges warrant caution. One of the primary concerns is the potential for escalating U.S.-China trade tensions, which could impact its sales in China, a market that represents a significant portion of its revenues.

In fiscal 2025, approximately 34% of Lam Research’s revenues were generated in China, a sharp decline from 42% in fiscal 2025. Given the ongoing restrictions on technology exports to China, LRCX faces heightened risk, creating increased uncertainty and lower visibility in the near term.

The semiconductor market’s cyclical nature poses a risk to Lam Research’s revenue consistency. NAND pricing pressures and the cautious capital spending among memory and logic clients could limit growth in the near term.

Lam Research’s extensive reliance on these segments makes it vulnerable to cyclical downturns. However, as memory spending is projected to rebound by late 2025, the company may weather this period of reduced spending, but the short-term outlook remains uncertain.

Conclusion: Hold Lam Research Stock for Now

Lam Research’s attractive valuation, strong technological foundation and strategic focus on high-growth markets like AI and HPC make it a compelling long-term investment. While near-term headwinds such as geopolitical risks and cyclical pressures remain, the company’s innovation and operational efficiency provide a solid foundation for future growth. Considering these factors, holding LRCX stock appears to be the most prudent strategy for investors.

Lam Research carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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