Lam Research (NDQ:LRCX): The Quiet Giant Behind the Semiconductor Cycle

Lam Research (NDQ:LRCX) is one of those companies that rarely dominates headlines but quietly shapes the technological world. It sits behind every major semiconductor manufacturer, enabling the production of memory and logic chips that power AI, cloud computing, smartphones, and industrial automation.

Earlier this week we wrote about Micron and its staggering results, going from less than US$10bn to over US$40bn in quarterly revenue in just 12 months. If Micron is the beneficiary of the AI memory boom, Lam Research is the company that makes Micron’s progress physically possible. Its tools etch, deposit, and clean the microscopic structures that define modern chips. Without Lam, the semiconductor industry simply does not scale.

Overview of Lam Research

Lam Research was founded in 1980 by David Lam, a pioneer in plasma etching. Lam actually left as a full-time staff member only a few years after that but the company bares his name. At the time, semiconductor manufacturing was shifting from wet chemical processes to dry plasma‑based techniques, and Lam’s early tools helped define the transition. The company’s first major breakthrough was the AutoEtch system, which became a standard in the industry and established Lam as a credible competitor to Applied Materials.

The 1990s were a period of consolidation and technological expansion. Lam broadened its portfolio beyond etch into deposition and cleaning, recognising that the future of semiconductor manufacturing would require integrated process steps. The company survived the dot‑com boom and bust, the memory downturns of the early 2000s, and the global financial crisis. Each cycle forced Lam to refine its cost structure, deepen customer relationships, and invest in R&D even when the industry contracted.

The most consequential strategic move came in 2012 with the acquisition of Novellus Systems. This deal transformed Lam Research from a specialist etch company into a full‑line wafer fabrication equipment (WFE) provider with strengths in deposition, electrochemical plating, and surface preparation. It also positioned Lam to benefit from the rise of 3D NAND, FinFET logic, and advanced DRAM — all of which require complex, multi‑step manufacturing processes that Lam’s tools excel at.

Over the past decade, Lam (which is based in Fremont, California which is on the eastern side of the San Francisco Bay Area) has become one of the three dominant players in semiconductor equipment, alongside Applied Materials and Tokyo Electron. Its competitive advantage is its deep process expertise in etch and deposition. This means it has long‑term relationships with memory manufacturers and a high‑margin installed base that generates recurring service revenue.

Lam’s tools are essential to the production of 3D NAND, which has become the backbone of modern storage. 3D NAND is flash memory that is an improvement from 2D by being build upwards like a skyscraper which reduces the need to shrink the cells to unmanageable sizes.

As memory manufacturers push toward higher layer counts, Lam’s etch and deposition systems become even more critical. The company’s long‑term history is therefore intertwined with the evolution of memory technology itself.

Benefiting from the AI boom

Lam’s most recent results show a company emerging from the semiconductor downturn and entering the early stages of a new upcycle. The AI infrastructure boom is driving demand for advanced memory and logic, and Lam Research’s customers (a list including Samsung, SK Hynix, Micron, TSMC, and Intel) are increasing capital expenditure to support next‑generation manufacturing. Specifically, companies like these want high‑bandwidth memory (HBM), 3D NAND, and advanced DRAM nodes. Lam’s tools are central to these transitions, particularly in high‑aspect‑ratio etch and atomic layer deposition.

Turning to the topline, Lam Research made US$18.4bn in FY25 and analysts believe it will achieve US$23.2bn in FY26 and US$29.1bn in FY27.

Moreover, its margins are expanding as utilisation improves and service revenue grows. Lam’s installed base (thousands of tools operating in fabs worldwide) generates recurring, high‑margin service income that smooths cyclicality. As fabs run at higher utilisation, service revenue rises. It made US$5.2bn in FY25 and consensus suggest US$7bn in FY26 and US$9.7bn in FY27.

These numbers reflect the early stages of a multi‑year investment cycle in AI infrastructure. Hyperscalers are building new data centres at unprecedented speed, and memory manufacturers are racing to supply HBM and advanced DRAM. Lam is one of the few companies positioned to benefit directly from this capex wave.

Will Lam Research’s Growth Continue?

The key question is whether Lam Research’s growth is sustainable. Semiconductor equipment is cyclical, but the current cycle is different. AI infrastructure requires enormous quantities of memory and logic, and the manufacturing complexity of these chips is increasing. Lam sits at the centre of this complexity.

The numbers we noted above are not typical for a cyclical semiconductor equipment company. The growth rates are more typical of a software company than a hardware manufacturer.

But even beyond the demand for AI accelerators generally, we’d note the following 3 points. First, it is demand for HBM that is causing Lam Research to grow – every AI accelerator requires large quantities of HBM, and manufacturing HBM is extremely complex. Second, 3D NAND is becoming more difficult. Layer counts are rising, and Lam’s tools are critical to high‑aspect‑ratio etch. And third, service revenue is stabilising the business. As the installed base grows, recurring revenue becomes a larger share of total income.

Of course, semiconductor cycles can turn quickly and competition from Applied Materials and Tokyo Electron remains intense. But the structural drivers are durable.

The current share price of ~US$375 implies a modest premium to historical multiples but a discount to the long‑term growth potential. The mean target price of US$340.58 suggests analysts are cautious, but the high estimate of US$480 reflects the upside if AI‑driven capex continues.

Conclusion

Lam Research is one of the most important companies in the semiconductor ecosystem. Its long‑term history is defined by technological reinvention and strategic discipline. Its immediate‑term performance reflects the early stages of a powerful new cycle driven by AI infrastructure. And the forward estimates show a company that could compound earnings significantly if the industry’s structural drivers hold.