Lam Research: AI capex and rising chip complexity drive a multi-year growth runway

• Lam Research is a leading global supplier of wafer fabrication equipment, providing deposition, etch, clean and dry resist tools to major chipmakers including TSMC, Samsung and SK Hynix.

• In FY4Q26, revenue grew 30.0% YoY to USD 6.72 billion with non-GAAP EPS of USD 1.82 beating estimates, alongside updated long-term frameworks targeting mid-50% gross margins.

• Global Wafer Equipment spending is forecast to reach USD 200 billion by 2028, with Lam sizeable market share in etch and deposition alongside key peers like Applied Materials and Tokyo Electron.

• Lam's growth is anchored by three structural thesis drivers: massive AI capex buildouts, expanding equipment intensity per wafer from rising chip complexity, and growing recurring revenue from its installed base.

• We assign a Buy rating with a target price of USD 386, implying approximately 28% upside as of 28 August 2026, based on a 28x P/E applied to projected fiscal 2029 earnings.

The global technological landscape is currently defined by the proliferation and integration of artificial intelligence across virtually all sectors of the economy. The computational demands of training increasingly complex AI models and running inference at scale require semiconductor devices with unprecedented levels of density, power efficiency, and architectural complexity.

Before these chips can be deployed in data centres, smartphones, or automotive vehicles, they must first be manufactured with atomic-level precision in highly sophisticated semiconductor fabrication facilities. This places wafer fabrication equipment (WFE) at the heart of the semiconductor manufacturing process, providing the tools required to translate increasingly complex chip designs into physical devices.

Company overview

Founded in 1980 and headquartered in Fremont, California, Lam Research is a leading global supplier of wafer fabrication equipment and related services to the semiconductor industry. Its hardware and software solutions are used by leading memory, foundry, and integrated device manufacturers (IDMs), including Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, SK Hynix, and Micron, to manufacture a wide range of products spanning non-volatile memory (NVM), dynamic random-access memory (DRAM), and logic devices.

The creation of a modern microchip involves hundreds of sequential steps to build billions of microscopic transistors on a single silicon wafer, and Lam's product portfolio is organised around four core process markets: deposition, etch, clean, and dry resist.

Deposition involves laying down ultra-thin layers of dielectric (insulating) and metal (conducting) materials; Etch selectively removes those materials to carve out the intricate, three-dimensional patterns and trenches that form the actual circuit; Clean removes microscopic impurities between each step to prepare the wafer surface for subsequent processing, as even minute contamination can compromise device performance or result in a defective chip; and Dry Resist offers improved pattern fidelity — the accuracy with which the intended circuit design is transferred onto the wafer — for EUV lithography compared with conventional liquid photoresists.

Figure 1: Lam Research’s products

Source: Lam Research Form 10-K. Data as of 28 June 2026.

From a revenue perspective, Lam’s business comprises two categories: Systems Revenue and Customer Support-Related Revenue, also known as its Customer Support Business Group (CSBG). Systems Revenue primarily comes from the sale of new leading-edge WFE equipment, while CSBG revenue includes maintenance, spare parts, upgrades, software, as well as sales of new and refurbished non-leading-edge equipment from its Reliant® product line. As the installed base grows, recurring Customer Support-Related Revenue provides greater earnings visibility and resilience against the cyclicality of semiconductor capital expenditure.

Lam attributes revenue to the geographic location of the customer's facility where the product is shipped or service rendered, not the customer's headquarters. On this basis, China was Lam's largest market in fiscal year 2026 at 34% of revenue, followed by Taiwan (22%), and Korea (19%), reflecting the heavy concentration of leading foundry and memory manufacturers in Asia.

By end market, foundry customers accounted for 54% of fiscal year 2026 revenue, memory 39%, and logic/IDM the remaining 7%.

Figure 2: Revenue by geography (FY2026)

Figure 3: Revenue by market segment (FY2026)

Latest Earnings Highlight: FY4Q26

In the fiscal fourth quarter ended June 28, 2026, Lam Research reported financial results that exceeded market expectations across both top-line and bottom-line metrics.

Revenue came in at USD 6.72 billion, up 30.0% year-on-year (YoY) and modestly ahead of the USD 6.68 billion consensus estimate. Systems revenue came in at USD 4.25 billion, up 23.6% YoY, while customer support-related revenue surged 42.6% YoY to USD 2.47 billion. Sequential top-line growth was led by a doubling of NAND revenue from the prior quarter. This rapid acceleration was driven by semiconductor customers converting to 256-layer and above devices to enable high-performance enterprise solid-state drives (SSDs).

Non-GAAP gross margin expanded by 1.7 percentage points year-over-year to 52.0%, driven by multiple factors including pricing actions, operational and scale efficiencies, as well as a favourable product mix. Similarly, non-GAAP operating margin expanded to 38.4%, primarily higher revenue and stronger gross margin.

Lam’s diluted EPS came in at USD 1.82, above consensus estimates of USD 1.70, representing a 36.8% YoY growth.

Table 1: Lam Research Q4 FY26 earnings

	Q4 FY26	Q4 FY25	Beat/Miss vs Estimate	YoY change
Revenue	6,722	5,171	0.6%	30.0%
Gross Margin	52.0%	50.3%	2.9%	+1.7pts
Operating margin	38.4%	34.4%	1.9%	+4.0pts
Net Income	2,280	1,698	7.9%	34.3%
Diluted EPS	1.82	1.33	7.2%	36.8%
Source: Lam Research Q4 FY26 Earnings Press Release, Bloomberg. Data as of 28 June 2026. Figures are in USD millions except percentages and per share amounts and reflect non-GAAP numbers.

For FY1Q27, management expects revenue of USD 8.1 billion (±USD 400 million), gross margin of 52% (±1 percentage point), operating margin of 39.5% (±1 percentage point), and EPS of USD 2.15 (±USD 0.15), all above consensus estimates.

Additionally, the company updated the long-term profitability framework introduced at its 2025 Investor Day, targeting gross margins in the mid-50% range and operating margins in the mid-40% range over the next several years, up from its previous targets of approximately 50% and 34–35%, respectively.

Industry overview

The WFE market is entering a multi-year expansion supercycle driven largely by the infrastructure build-out for artificial intelligence. SEMI's mid-2026 forecast projects global WFE sales to grow 23.1% in 2026, 21.8% in 2027 and 14.1% in 2028 to reach USD 200 billion.

Growth spans both logic and memory. Foundry/logic spending is being driven by advanced-node capacity buildouts for AI accelerators, high-performance computing, and premium mobile processors, while memory equipment spending is expected to expand on the back of HBM demand, advanced DRAM node migration, and NAND technology transitions toward higher layer counts.

Figure 4: Global WFE sales are set for strong growth over the next few years

Competitive landscape

Lam is particularly well positioned in etch, where it is the market leader in conductor etch, with an approximately 49% market share and an installed base of more than 40,000 chambers globally. In dielectric etch, Lam also holds a strong position, with a 29% market share, although it trails Tokyo Electron. In deposition, its primary competitors are Applied Materials, ASM International and Tokyo Electron. In wet clean, Lam primarily competes with Screen Holdings, SEMES and Tokyo Electron.

Table 2: Competitors across deposition, etch, and clean

Tool category	Sub-segment	Market Share
Etch	Conductor Etch	Lam Research – 49% Applied Materials – 30% Naura 8% Others – 13%
	Dielectric Etch	Tokyo Electron – 55% Lam Research – 29% AMEC – 9% Others – 7%
Deposition	Plasma CVD	Applied Materials – 48% Lam Research – 34% Piotech – 9% Others – 9%
	Nontube LPCVD	Tokyo Electron – 35% Lam Research – 34% Applied Materials – 17% Naura – 7% Others – 7%
	ALD	ASM International – 54% Tokyo Electron – 15% Lam Research – 10% Jusung – 5% Applied Materials – 4% Others – 12%
Clean		Screen Holding Semes Co Tokyo Electron
Source: Etch and Deposition market share data are from Gartner and Bloomberg Intelligence as of 2025, while Clean data are from Lam Research’s 10-K as of 28 June 2026.

Investment thesis

AI capex creates a multi-year WFE growth runway

The proliferation of AI is driving exceptionally strong demand for compute power, prompting companies to invest aggressively in capacity as supply continues to lag demand. Meta, Alphabet, Amazon and Microsoft are expected to collectively spend around USD 760 billion on capex in 2026, up 85% YoY, with further growth signalled for 2027. This spending is flowing downstream into leading-edge chips, new fabrication facilities and the equipment required to manufacture them.

TSMC has raised its 2026 capex guidance to USD 60–64 billion, from USD 56 billion previously, while indicating that spending over the next three years will be significantly higher than the preceding three years. Similarly, SK Hynix expects 2026 capex to rise to the high-KRW40 trillion range, from KRW30.2 trillion in 2025, as it expands capacity to meet strong AI-related memory demand.

Against this backdrop, Lam expects calendar 2026 WFE spending to reach the low-US$150 billion range, above its previous US$140 billion forecast. Management also sees strong visibility into 2027, with customers announcing multi-year fab expansions and securing equipment to fill incremental clean-room capacity as it comes online.

Rising chip complexity is structurally expanding Lam's serviceable market, independent of unit volume growth

A second, and arguably more durable, driver beyond the current AI capex wave is the increasing complexity of each new generation of chips as manufacturers push the limits of performance to meet the demands of AI workloads. Greater complexity requires more process steps per wafer and, consequently, more equipment to produce the same number of finished chips within a given timeframe. As two-dimensional transistor scaling approaches its physical limits, manufacturers across memory, logic and packaging are increasingly adopting three-dimensional architectures, driving greater demand for Lam's products.

In memory, manufacturers are migrating 3D NAND from 128-layer architectures toward 256-, 300- and eventually 500-plus-layer devices to meet growing data centre storage requirements. Processing these increasingly tall structures requires greater volumes of specialised deposition and more sophisticated, high-aspect-ratio etching. Lam's management estimates that this transition could roughly double its served available market (SAM) per wafer as the industry progresses from 128-layer to 500-plus-layer NAND.

In logic, the transition from legacy FinFET transistors to Gate-All-Around (GAA) nanosheets at 3-nanometre and 2-nanometre nodes is having a similar effect. The number of applications requiring surface treatment roughly doubles through this transition, increasing the amount of equipment needed to produce the same wafer throughput. Lam's newer Akara conductor etch and Argos selective etch platforms are positioned to capture this shift, having secured tool-of-record wins as customers transition to GAA architectures.

Advanced packaging adds another layer of complexity. High-bandwidth memory (HBM), which stacks DRAM dies and connects them through thousands of through-silicon vias (TSVs), is driving demand for Lam's TSV etch and electroplating solutions, with related revenue expected to grow by more than 70% YoY in 2026.

Taken together, these transitions mean that Lam's growth is not simply a function of how many chips the industry produces, but also of how much equipment is required to manufacture each chip. This provides a structural source of growth that can persist even if end-unit semiconductor demand eventually moderates, as rising process complexity drives greater equipment requirements and expands Lam's SAM per wafer.

Lam's services business provides a growing source of recurring revenue

Beyond equipment sales, Lam has built a durable and growing services business around its installed base of fabrication systems. As the installed base expands, more equipment in the field generates recurring demand for upgrades, spare parts and maintenance, providing Lam with a growing source of services revenue that is less dependent on new equipment orders.

Upgrades are a key growth driver, allowing customers to enhance the capabilities or productivity of existing systems rather than replace them entirely. By extending the functionality of its installed base, Lam can monetise new technologies across equipment already in the field while offering customers a more cost-effective way to meet evolving production requirements.

The strength of this model was evident in the latest quarter, when CSBG delivered its third consecutive quarter of record revenue at nearly USD 2.5 billion, up 17% sequentially and 43% YoY. Growth was driven primarily by record upgrade revenue, as customers accelerated conversions of existing NAND fleets to higher-layer architectures, alongside continued strength in spares amid high fab utilisation.

Lam's push into automation and equipment intelligence within CSBG is another, earlier-stage growth opportunity, exemplified by its Dextro collaborative maintenance robots which automate routine preventative maintenance to improve tool availability and output. Management has doubled the number of automatable maintenance tasks since the start of 2026, with applications expanding beyond NAND into DRAM. While still in its early stages, the rollout represents a multi-year opportunity to extend these solutions across Lam's installed base and drive further services revenue.

Taken together, CSBG provides Lam with a recurring and increasingly important source of revenue that scales with its installed base rather than new capital orders. This increases the lifetime value of each system while providing greater revenue resilience during periods of slower equipment spending.

Valuations

Overall, we expect strong WFE growth as chipmakers accelerate capacity expansion to meet rising AI infrastructure demand, while increasing chip complexity provides a durable long-term tailwind. Lam is well positioned to capitalise on both trends and capture incremental market share, supported by its technological leadership in etch and deposition.

China remains an area of caution, with management guiding to flat WFE growth in the region this year. We believe this largely reflects a normalisation from prior-year overordering, as domestic customers front-ran potential US export restrictions, alongside China's broader push for semiconductor self-sufficiency, which is driving domestic fabs to increasingly turn to local equipment suppliers such as AMEC and Naura. That said, we expect the China-specific headwind to be offset by continued strength in leading-edge process node investment, particularly in 2nm and 3nm capacity, as well as advanced packaging.

On balance, we project high-double-digit revenue growth over the next three fiscal years, with growth gradually moderating as industry-wide supply expansion catches up with AI-driven demand.

We assign Lam a fair price-to-earnings (P/E) multiple of 28x, balancing the strength of the current AI tailwind against the longer-term risk of a slowdown as AI infrastructure spending eventually moderates. Applying this multiple to our projected FY2029 earnings yields a target price of USD 386, implying approximately 28% upside as of the 28 August 2026 closing price of USD 301.9.

Table 3: Projections for Lam Research earnings

Lam Research	FY26	FY27E	FY28E	FY29E
Earnings Per Share (EPS)	5.8	9.6	11.6	13.8
Earnings Growth YoY	39.8%	66.1%	21.6%	18.4%
PE Ratio (X)	75.2	31.5	25.9	21.9
Target Price (based on a fair PE of 28X)				386
Upside Potential				27.8%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 28 August 2026

Figure 5: Share prices are driven by earnings growth in the long run

Investment risks

AI capex moderation risk

Lam's growth outlook remains closely tied to the strength and duration of AI infrastructure investment. A faster-than-expected moderation in hyperscaler capex, driven by weaker-than-expected AI adoption or tighter capital discipline, could weaken demand for leading-edge semiconductors and, in turn, wafer fabrication equipment.

Conversely, sustained enterprise adoption of AI and continued data centre expansion could drive stronger-than-expected semiconductor and equipment demand, providing upside to our forecasts.

Geopolitical risk

Lam Research remains exposed to ongoing US-China tensions, particularly as the US continues to tighten export controls on semiconductor equipment. While current restrictions are largely focused on advanced-node manufacturing, any extension to mature-node equipment could put further pressure on Lam’s China revenue, creating greater opportunities for domestic suppliers such as AMEC and Naura to replace foreign equipment and gain market share.

That said, we see limited risk of these pressures spilling over into Lam's ex-China revenue. Semiconductor manufacturers typically face high switching costs and lengthy qualification processes when replacing equipment on established production lines, making it difficult to substitute qualified suppliers quickly. Lam's extensive global service network also provides an advantage over its smaller Chinese competitors. Potential political pressure from Washington could also discourage non-China customers from adopting Chinese equipment, as demonstrated by TSMC reportedly eliminating the use of Chinese equipment in its most advanced fabs in 2025 to avoid US scrutiny.

Customer concentration
Lam derives a significant portion of its revenue from a small number of large customers, exposing the company to outsized swings in financial performance should any one of them change its spending plans. In fiscal 2026, Lam Research’s top four customers accounted for 16%, 15%, 12% and 12% of total revenue, respectively, collectively representing 55% of the company’s business. Any decision by these customers to delay capacity expansion or shift orders to competitors could therefore have a material adverse impact on Lam’s financial performance.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.