Lam Research Stock's High P/E: Justified Premium or Too Pricey to Buy?

Lam Research Corporation LRCX, a leader in semiconductor fabrication equipment, currently trades at a forward 12-month price-to-earnings (P/E) ratio of 38.14, significantly higher than the Zacks Electronics – Semiconductors industry average of 32.

LRCX’s P/E multiple is also higher than that of some other semiconductor fabrication equipment providers, including KLA Corporation KLAC, Onto Innovation Inc. ONTO and Applied Materials, Inc. AMAT. At present, KLA Corporation, Onto Innovation and Applied Materials have a forward 12-month P/E ratio of 34.16, 33.78 and 31.60, respectively.

Lam Research Forward 12-Month P/E Ratio

LRCX’s lofty valuation multiple is a result of robust appreciation in its share price. In the trailing 12 months, Lam Research shares have soared 174.9%, outperforming the industry’s gain of 35.1%. It has also outpaced the returns of KLA Corporation, Applied Materials and Onto Innovation. Shares of KLA Corporation, Applied Materials and Onto Innovation have rallied 90%, 80.4% and 21.6%, respectively.

Lam Research One-Year Price Return Performance

Although it seems investors are willing to pay a premium for the stock, the billion-dollar question is: Is it justified to overpay?

In our opinion, Lam Research’s strong growth prospects amid artificial intelligence (AI)-driven demand for advanced nodes justify this premium valuation. The company’s high growth potential in AI and high-performance computing (HPC) markets, along with back-to-back quarters of strong financial performance, suggest that LRCX stock’s upward momentum is far from over.

Lam Research’s Resilient Financial Performance

Despite ongoing macroeconomic challenges, geopolitical issues, and trade and tariff wars, LRCX’s financials remain impressive. In the company’s last reported financial results for the second quarter of fiscal 2026, total revenues rose 22% year over year to $5.34 billion and beat the Zacks Consensus Estimate by 2.1%, primarily driven by continued demand across the Systems and Customer Support Business Group segments.

Lam Research reported second-quarter non-GAAP earnings of $1.27 per share, which beat the consensus mark by 8.5%. The bottom line also increased 39.6% on a year-over-year basis.

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 second quarter, Lam Research’s non-GAAP operating margin rose to 34.3%, up 360 basis points from the year-ago quarter, which is impressive, considering the challenging macroeconomic environment.

This strong financial performance reinforces Lam Research’s resilience in navigating an evolving semiconductor cycle. As demand grows for advanced nodes, LRCX’s specialized technology in etch and deposition tools for high-aspect-ratio structures positions it well to capitalize on this trend. The company’s second-quarter results also highlight its effective cost management, which has enabled sustained profitability.

AI-Driven Chip Demand: The Key Catalyst for LRCX’s Growth

Lam Research is capitalizing on AI trends. It builds the tools chipmakers need to manufacture next-generation semiconductors, including high-bandwidth memory (HBM) and chips used in advanced packaging. These technologies are vital for powering AI and cloud data centers.

Lam Research’s products are not only critical but also innovative. For example, its ALTUS ALD tool uses molybdenum to improve speed and efficiency in chip production. Another product, the Aether platform, helps chipmakers achieve higher performance and density. These are essential capabilities as demand for advanced AI chips continues to increase.

In 2025, Lam Research’s revenues from advanced packaging grew significantly, and management anticipates strong 40% year-over-year growth for 2026. 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. The company has demonstrated consistent execution, maintaining quarterly revenues of more than $5 billion for the past three consecutive quarters, reflecting solid demand from leading chipmakers such as Taiwan Semiconductor Manufacturing and Samsung.

With AI-driven investments accelerating, Lam Research’s leading position in etch and deposition makes it a key beneficiary of the ongoing semiconductor spending cycle. The Zacks Consensus Estimate for fiscal 2026 and 2027 revenues implies a year-over-year increase of 19.5% and 21.2%, respectively. The consensus mark for fiscal 2026 and 2027 earnings per share indicates growth of 26.1% and 24.4%, respectively.

Final Thoughts: Buy LRCX Stock Right Now

Lam Research’s solid financial performance and strategic focus on AI-driven growth make it a compelling investment option right now despite lofty valuations. The company’s expanding market share in AI and datacenter fabrication, coupled with innovative product launches, strengthens its competitive positioning.

Currently, Lam Research sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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

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