AMAT vs. LRCX: Which Semiconductor Equipment Stock is the Better Buy?

Applied Materials AMAT and Lam Research LRCX stand out as pivotal players in the semiconductor supply chain, both offering a comprehensive range of equipment and services. Both AMAT and LRCX develop Chemical Vapor Deposition, Atomic Layer Deposition (ALD), Physical Vapor Deposition, Chemical Mechanical Planarization Epitaxy and etching tools and services for various stages of semiconductor fabrication.

With the artificial intelligence (AI) boom to continue driving growth for the semiconductor industry, the question remains: Which stock is a better investment pick today? Let’s break down their fundamentals, growth prospects, market challenges and valuation to determine which offers a more compelling investment case.

The Case for Applied Materials Stock

Applied Materials is a major manufacturer of semiconductor fabrication equipment, covering deposition, etching and inspection, serving the most crucial stages of chip manufacturing. Applied Materials’ use of AI-driven semiconductor technology has created long-term growth prospects for it.

As the demand for AI chips is growing, so is a new wave of semiconductor investments. AMAT is capitalizing on this opportunity through its expertise in gate-all-around (GAA) transistors, high-bandwidth memory (HBM) and advanced packaging, making it a critical supplier for AI chipmakers.

In fiscal 2024, AMAT’s revenues from advanced semiconductor nodes crossed $2.5 billion. Management expects this figure to double in fiscal 2025, fueled by increasing customer adoption of GAA and backside power delivery solutions. These factors are driving AMAT’s financial performance. In its latest first-quarter fiscal 2025 results, revenues and non-GAAP EPS improved 7% and 12%, respectively.

Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. price-consensus-eps-surprise-chart | Applied Materials, Inc. Quote

Nonetheless, Applied Materials is grappling with some challenges that are likely to weigh on its near-term prospects. The U.S. government’s export restrictions on semiconductor equipment sales to China have raised concerns about the company’s revenue stability. During its first-quarter earnings call, Applied Materials stated that these restrictions would reduce fiscal 2025 revenues by $400 million, with half of this decline affecting the second-quarter performance.

The company also acknowledged a slowdown in the IoT, Communications, Automotive, Power, and Sensors (ICAPS) segment, which had been a key growth driver in recent years. Moderating growth at ICAPS after a strong 2023-2024 cycle makes us wary of a potential drag on AMAT’s overall performance. These near-term challenges were well reflected in the company’s guidance for the second quarter. Management’s projections of $7.1 billion (± $400 million) for revenues and $2.30 (± 18 cents) for non-GAAP EPS were below the Zacks Consensus Estimate.

The Zacks Consensus Estimate for fiscal 2025 signals single-digit growth in both bottom and top lines. The consensus mark for revenues and EPS indicates year-over-year growth of 6% and 8.21%, respectively.

The Case for Lam Research Stock

Lam Research has long been a pillar of the chip equipment world, especially in etch and deposition technology, which are critical for HBM and advanced packaging technologies essential for AI workloads. These leading-edge technologies are helping it capitalize on the opportunities from the booming demand for AI and datacenter chips, which require advanced fabrication technologies.

LRCX’s ALTUS ALD tool utilizes the capabilities of metal molybdenum to ensure high-precision deposition of low-resistivity, void-free molybdenum metallization that enables chip makers to develop memory and logic chips for AI workloads. Its Aether platform allows extended single-print patterning, higher resolution and pattern fidelity, enabling chip manufacturers to produce chips with higher performance, greater density, and energy efficiency, ideal for AI chip manufacturing.

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 by 2025. Additionally, the industry’s migration to backside power distribution and dry-resist processing presents further growth opportunities for Lam Research’s cutting-edge fabrication solutions.

These trends are aiding Lam Research’s financial performance. In the third quarter of fiscal 2025, the company reported revenues of $4.72 billion, up 24.5% year over year, and earnings per share (EPS) of $1.04, highlighting a 33.3% increase (adjusting for stock split).

Lam Research Corporation Price, Consensus and EPS Surprise

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

The Zacks Consensus Estimate for fiscal 2025 signals continued stability in its core business. The consensus mark for revenues and EPS indicates year-over-year growth of 21.8% and 32.8%, respectively. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Stock Price Performance and Valuation of AMAT and LRCX

Year to date, shares of Applied Materials and Lam Research have lost 25.5% and 19.2%, respectively.

Both AMAT and LRCX are trading at forward 12-month price to sales multiples of 4.24X and 5.14x, respectively, below the electronics - semiconductor industry’s average of 6.92X, over the past year.

Conclusion: LRCX vs. AMAT

Both AMAT and LRCX are essential players in the semiconductor supply chain space, but LRCX has a stronger growth profile due to its superior etching and deposition technology for AI chip manufacturing. While AMAT trades at a lower valuation and benefits from diverse semiconductor equipment offerings, its growth outlook is more uncertain due to the slowing growth and the escalating U.S.-China trade war.

While LRCX carries a Zacks Rank #2 (Buy), AMAT has a Zacks Rank #3 (Hold). 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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