LRCX Q3 Deep Dive: AI Demand and Memory Upgrades Drive Performance Amid China Uncertainty

Semiconductor equipment maker Lam Research (NASDAQ:LRCX) announced better-than-expected revenue in Q3 CY2025, with sales up 27.7% year on year to $5.32 billion. On top of that, next quarter’s revenue guidance ($5.2 billion at the midpoint) was surprisingly good and 8% above what analysts were expecting. Its non-GAAP profit of $1.26 per share was 3.3% above analysts’ consensus estimates.

Is now the time to buy LRCX? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Lam Research’s third quarter showcased strong execution as the company exceeded Wall Street’s revenue and profitability expectations, driven primarily by heightened demand for semiconductor equipment tied to artificial intelligence (AI) infrastructure and high-bandwidth memory (HBM) investments. CEO Tim Archer emphasized that “growth in total CSBG revenue outpaced the increase in installed base units,” citing robust activity across both spares and services. The quarter also reflected Lam’s ability to deliver advanced technology solutions and maintain solid profitability, with management pointing to favorable customer mix and product innovation as key contributors.

Looking forward, Lam’s optimistic outlook for the next quarter centers on sustained AI-driven demand for advanced semiconductor manufacturing and ongoing NAND (flash memory) upgrade cycles. Management highlighted that recently announced AI data center investments are expected to fuel equipment spending, stating, “AI data centers require the most advanced CPU and accelerator capabilities, low latency, high bandwidth memory, and high-speed ESSD storage.” Despite some headwinds from new export restrictions on China, Lam anticipates continued strength in global demand for leading-edge logic and memory equipment, underscoring the company’s focus on capitalizing on industry technology transitions.

Key Insights from Management’s Remarks

Management linked the quarter’s outperformance to a combination of AI-related investments, momentum in NAND upgrades, and operational efficiency, while also acknowledging that regulatory changes in China will affect future results.

• AI demand shapes growth: Lam’s leadership underscored that the ramp-up of AI infrastructure is driving demand for advanced semiconductor devices, particularly in data centers requiring sophisticated memory and processing solutions. This trend is increasing the need for deposition and etch equipment, Lam’s core competencies.
• NAND upgrades accelerate: Customers are accelerating upgrades to higher-layer NAND devices, addressing the need for increased storage capacity in enterprise solid-state drives. Archer noted, “Our upgrades business is projected to remain strong into 2026, as NAND bit demand looks to be trending higher than prior expectations.”
• Product innovation wins market share: Lam’s recent wins with advanced atomic layer deposition (ALD) and Ether Dry Resist EUV patterning underscore its ability to address emerging manufacturing complexities. These products are helping customers enable smaller, faster, and more power-efficient chips for AI and high-performance computing.
• Regional shifts in revenue: Management clarified that China’s 43% revenue contribution was driven by domestic Chinese customers, not multinationals. Regulatory restrictions are expected to reduce China’s share below 30% in 2026, with global multinationals expected to offset the impact.
• Operational efficiency and margin expansion: Gross and operating margins reached record levels, benefiting from favorable customer mix and disciplined cost management. CFO Doug Bettinger stated, “We remain focused on strategic investments that extend our technology leadership, operational efficiencies, and long-term value creation.”

Drivers of Future Performance

Lam’s forward guidance is shaped by sustained AI-driven demand, accelerated NAND upgrades, and evolving customer and geographic mix as regulatory changes take effect.

• AI infrastructure investment: The company expects ongoing data center and AI-related spending to drive demand for leading-edge manufacturing equipment. Archer explained that “the surge in AI data center demand creates billions of dollars of served available market expansion and share gain opportunity for Lam.”
• NAND upgrade and capacity additions: Lam anticipates that accelerated NAND upgrades will continue through 2026, with potential for new capacity investments if demand for high-capacity storage persists. Upgrades to existing tools remain the priority, but management noted that “capacity additions to meet rising bit demand may be needed sooner than previously thought.”
• China regulatory risk and customer mix: New export restrictions on Chinese entities are projected to reduce China’s revenue contribution, presenting a headwind to gross margin. However, management expects stronger spending from global multinationals, as well as continued growth in advanced packaging and logic, to more than offset this impact.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) progress on new product adoption, particularly in ALD and advanced patterning for AI and high-bandwidth memory applications, (2) Lam’s ability to offset expected declines in China revenue with growth from global multinationals and advanced packaging, and (3) the pace and scale of NAND upgrade cycles and potential capacity additions. Execution on operational efficiency and margin resilience amid changing customer and geographic mix will also be key areas of focus.

Lam Research currently trades at $140.49, in line with $141.40 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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