Lam Research 1QFY27 earnings: Record results, but shares fell. Why we see a buying opportunity

• Lam posted its fifth straight record quarter. Revenue rose 54% YoY to USD 8.22 billion, the non-GAAP operating margin topped 40% for the first time, and EPS grew 75% to USD 2.20, broadly in line with consensus.

• Management guides 2QFY27 revenue of USD 8.6 billion (±USD 400 million), held back by supply constraints. It raised its CY26 WFE estimate to the mid-USD 150 billion range and expects CY27 WFE above USD 200 billion.

• AI infrastructure demand and rising chip complexity are driving investment across NAND, DRAM, leading-edge foundry/logic and advanced packaging, supporting Lam’s deposition and etch businesses and market share gains.

• CSBG revenue grew 40% YoY to USD 2.49 billion, supported by high fab utilisation, equipment upgrades and new service contracts. Its recurring revenue stream scales with Lam’s installed base, providing greater resilience if equipment spending slows.

• We maintain our USD 386 target price, which implies about 60.2% upside as of 27 October 2026. The roughly 12% post-results selloff looks overdone given strong fundamentals, and we see it as an attractive entry point for long-term investors.

Lam Research delivers another record quarter

For the fiscal first quarter ended 27 September 2026, Lam Research reported results broadly in line with market expectations and management’s guidance, marking its fifth consecutive quarter of record revenue alongside record gross margin, operating margin and earnings per share (EPS).

Revenue rose 54% year-on-year (YoY) to USD 8.22 billion, slightly ahead of the USD 8.13 billion consensus estimate. Systems revenue grew 62% YoY to USD 5.73 billion. Memory accounted for 46% of systems revenue, with sequential growth led by NAND, where revenue rose roughly 40% quarter-on-quarter as the industry continued to spend on conversions to 256-layer and above devices, including initial spending on 384-layer-class devices. Foundry’s share of systems revenue rose to 46% from 44% in the June quarter, driven by investment in leading-edge nodes, including advanced packaging, as well as mature-node spending in China. Meanwhile, customer support-related business (CSBG) revenue increased 40% YoY to USD 2.49 billion.

Profitability continued to improve alongside revenue growth. Non-GAAP gross margin expanded 1.8 percentage points YoY to 52.4%, helped by a favourable customer and product mix. Non-GAAP operating margin rose to 40.2%, above 40% for the first time in Lam’s history, reflecting stronger gross margins and continued operating leverage as the business scales. Non-GAAP diluted EPS increased 75% YoY to USD 2.20, broadly in line with the consensus estimate of USD 2.19.

Table 1: Lam Research Q1 FY27 earnings

	Q1 FY27	Q1 FY26	Beat/Miss vs Estimate	YoY change
Revenue	8,219	5,324	1.1%	54%
Gross Margin	52.4%	50.6%	0.4%	+1.8pts
Operating margin	40.2%	35.0%	1.2%	+5.2pts
Net Income	2,768	1,605	0.6%	73%
Diluted EPS	2.20	1.26	0.5%	75%
Source: Lam Research Q1 FY27 Earnings Press Release, Bloomberg. Data as of 22 October 2026. Figures are in USD millions except percentages and per share amounts and reflect non-GAAP numbers.

Looking ahead, for FY2Q27, management expects revenue of USD 8.6 billion (±USD 400 million), gross margin of 52.5% (±1 percentage point), operating margin of 40.5% (±1 percentage point) and EPS of USD 2.33 (±USD 0.15). It noted that the revenue guide would have been “a bit higher” if not for near-term supply chain constraints, as some of Lam’s component suppliers have struggled to keep pace with the rapid growth in its order. Shipments delayed by these constraints are expected to move into the March quarter.

For CY26, Lam expects systems revenue to grow well over 40% YoY and CSBG revenue to grow more than 30% YoY. Management also raised its CY26 wafer fabrication equipment (WFE) estimate to the mid-USD 150 billion range, up from a little over USD 150 billion previously. Lam expects to outperform the broader WFE market for a third consecutive year, supported by an expanding served available market (SAM) as a proportion of total WFE, alongside market share gains from products addressing this growing opportunity.

For CY27, Lam’s preliminary outlook is for WFE spending of more than USD 200 billion, with growth led by DRAM, followed by leading-edge foundry/logic and NAND. Management cautioned that a shortage of clean room space at chipmakers, along with tight supply of certain components across the equipment industry, will continue to limit the industry’s ability to fully meet end demand, implying unconstrained WFE would be higher still. Clean room availability should gradually improve as 10 new Tier-1 fabs come online over the course of 2027. CSBG revenue is expected to grow more than 15% YoY.

With demand outpacing supply, Lam is working closely with its suppliers to accelerate their capacity expansion. Over the past two months, it has hosted several large events with its global supply base to share its growth expectations for the next couple of years and to understand what support suppliers need to keep pace. Management added that the current situation is “nothing like” the COVID-era shortages.

AI and rising chip complexity keep WFE demand on an upward path

AI continues to drive unprecedented semiconductor demand and increasing device complexity. As AI shifts towards autonomous agentic workflows, demand for compute, memory and storage keeps expanding. Management believes the industry is in the early stages of a multi-year investment cycle, with customer visibility extending through 2028. Increasing manufacturing complexity, new materials integration and advanced packaging are raising deposition and etch intensity across all device types, which plays directly to Lam’s strengths.

In NAND, the upgrade cycle still has room to run. Customers are converting from 128-layer to 200-layer-class devices, which management expects to complete in 2027, and the industry is already moving towards 300- and 400-layer devices, setting up the next cycle. Each step up in layer count creates taller structures that require more deposition and more sophisticated high-aspect-ratio etching. This plays to Lam’s strength in etch and deposition.

NAND demand is also no longer just about layer counts. AI performance and economics are creating demand for multiple storage tiers, each optimised for a different workload. Quad-level cell (QLC) NAND provides cost-effective storage for fast-growing AI data volumes, triple-level cell (TLC) NAND serves as a high-bandwidth tier for context memory and key-value (KV) cache workloads, while single-level cell (SLC) NAND is emerging for low-latency, high-speed access in agentic AI. Lam expects all three tiers to grow, but SLC matters most for equipment demand. Converting from TLC to SLC cuts the bits stored per device by roughly three times, so every 1 percentage point of NAND bits that shifts to SLC requires about 2% more installed wafer capacity to meet the same bit demand. With the industry’s largest NAND installed base and a portfolio spanning all critical deposition and etch steps, Lam is well positioned to capture this demand.

Outside of NAND, foundry/logic and DRAM have accounted for about 80% of Lam’s systems revenue growth year-to-date. In DRAM, which delivered record revenue in the September quarter, spending remains focused on technology upgrades that enable DDR5, LPDDR5 and, most importantly, high-bandwidth memory (HBM). Lam’s Aether dry resist is already ramping in HBM high-volume manufacturing, and Akara conductor etch has been adopted by multiple chipmakers, helping customers improve DRAM scaling productivity at a time when maximising fab output is critical.

In foundry/logic, Lam is gaining share in backside power, which customers are ramping at the 2nm node and below and which adds deposition, plating and etch steps. During the quarter, it secured tool-of-record wins for four products (VECTOR, SABRE, Flex and HALO) at a leading customer.

Advanced packaging is another major growth driver. It is highly deposition- and etch-intensive and increasingly important for next-generation AI and high-performance computing devices. Lam has significant exposure to this segment and expects its advanced packaging revenue to grow more than 70% in 2026. Recent wins include four new positions for Syndion in advanced logic and HBM through-silicon via (TSV) applications, and multiple TSV liner wins for Striker ALD.

Longer term, Lam expects its share in panel-level packaging, which customers are adopting for larger AI packages, to surpass its strong position in wafer-level packaging. It has already shipped panel plating systems to more than 20 customers, though management noted the market is still at a very early stage.

CSBG growth benefits from a larger Installed base and higher service needs

Beyond equipment sales, CSBG provides a recurring source of revenue that scales with Lam’s installed base rather than with new equipment orders. Each system Lam ships generates ongoing demand for spare parts, upgrades and services over its lifetime.

Growth is broad-based across spare parts, equipment upgrades and customer services. High fab utilisation across the industry is driving strong consumption of spare parts, which remain CSBG’s largest component, while the ongoing NAND conversion cycle continues to support upgrade demand.

Customers’ growing focus on installed-base efficiency is also opening up new revenue streams. As chipmakers push to shrink devices faster and extract more performance, they have less tolerance for process variability, raising the value of tools that improve maintenance and process control. Lam’s Equipment Intelligence and Dextro collaborative robots (cobots) for maintenance recently helped it secure performance-based service contracts with multiple memory manufacturers.

Lam’s Reliant product line, which serves mature and specialty nodes, also performed well during the quarter on the back of strong mature-node investment. Tightness in leading-edge foundry capacity is spilling over into mature and specialty nodes such as analog, power and microcontrollers, prompting foundries and integrated device manufacturers to add capacity. While mature-node spending outside China is not expected to grow meaningfully in 2026, management expects it to strengthen in CY27.

As Lam’s installed base continues to expand, CSBG should keep growing, raising the lifetime value of each system Lam sells and giving the company greater revenue resilience if equipment spending slows.

Selloff creates an even more attractive entry point

Concerns about the sustainability of AI spending continue to weigh on sentiment across the semiconductor sector. Lam’s shares fell nearly 12% the day after its results, as a modest earnings beat and supply-constrained guidance fell short of elevated market expectations. We view the sell-off as overdone.

The underlying fundamentals remain strong. We expect WFE growth to remain robust as chipmakers expand capacity to meet rising demand for AI infrastructure, while increasing chip complexity provides a durable long-term tailwind. Lam’s leadership in etch, strong position in deposition and growing installed base leave it well positioned to capitalise on both trends and continue gaining market share.

We maintain our target price of USD 386. Management’s tax rate guidance came in slightly higher than we expected, but this is offset by stronger-than-expected revenue growth, leaving our EPS projections largely unchanged. Our FY29 price target implies approximately 60.2% upside from the 27 October closing price of USD 240.85. We see the recent selloff as an opportunity for long-term investors to buy the dip in a company whose earnings growth, margins and market position continue to strengthen.

Table 2: 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	25.2	20.7	17.5
Target Price (based on a fair PE of 28X)				386
Upside Potential				60.2%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 27 October 2026 Lam Research’s fiscal year ends on the last Sunday of June. FY2027 runs from 29 June 2026 to 27 June 2027.

Figure 1: Share prices are driven by earnings growth in the long run

Declaration:

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

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.