Lam Research (LRCX) Sinks Despite a Record Quarter and an Upbeat Guide

Lam Research (LRCX) did almost everything right this quarter, and the stock still got hammered. Shares fell by double digits on Thursday after the chip-equipment maker reported record results on Wednesday evening.

It's a textbook sell-the-news move. Lam had run up roughly 80% over the past year heading into the print, so a modest beat left no room for error.

For the quarter ended September 27, revenue hit $8.22 billion, up 22% from the prior quarter. Non-GAAP EPS came in at $2.20, versus the $2.18 consensus, according to Lam's earnings release.

Systems revenue did the work, jumping to $5.73 billion from $4.25 billion in June. Customer support revenue was flat at about $2.49 billion. Non-GAAP gross margin edged up to 52.4% and operating margin to 40.2%.

The balance sheet got stronger as well. Cash rose to $7.45 billion, operating cash flow was about $3.5 billion, and Lam returned more than $1.3 billion to shareholders through dividends and buybacks, as Investing.com reported on Yahoo Finance.

Guidance was also above the Street, at least on paper. Lam sees December-quarter revenue of $8.60 billion, plus or minus $400 million, against a $8.54 billion consensus, and EPS of $2.33, plus or minus $0.15.

"With AI driving higher semiconductor demand and greater device complexity, our focus on operational execution helped Lam deliver record revenue, profit, and earnings per share in the September quarter." — Tim Archer, President and CEO, Lam Research

So why the selloff? Three reasons stand out. First, the guide only edged past expectations, and Investor's Business Daily summed it up as a modest beat for the September quarter that only matched estimates for December.

Second, the guidance range is wide. The revenue band runs from $8.2 billion to $9.0 billion, and EPS from $2.18 to $2.48, which gives bears plenty to chew on.

Third, supply. Yahoo Finance reported that Lam said results would have been a bit higher if not for near-term supply chain constraints. That landed in a market already jittery about AI spending, and Nvidia fell more than 4% the same day.

The damage wasn't contained to one name. IBD reported the Nasdaq sank nearly 3% on Thursday even as Texas Instruments delivered its own beat-and-raise quarter.

For long-term investors, the question is whether this is a reset or a warning. The business itself looks healthy: margins are expanding, AI demand is driving leading-edge deposition and etch purchases, and Lam raised its quarterly dividend to $0.33 from $0.26 recently.

Wall Street was constructive going in. MarketBeat's tally showed a Moderate Buy consensus with an average price target near $365, and Deutsche Bank had a $375 target. The stock's one-year range of $135.50 to $438.50 shows how violently sentiment on this group can swing.

The risks are real, though. China made up 35% of September-quarter revenue, which leaves Lam exposed to any shift in that market. The stock was also trading at around 45 times trailing earnings before the drop, and chip-equipment names have been volatile as investors question whether 2027 capital spending can match the AI hype.

What to do with it? If you already own Lam, a post-earnings flush after an 80% run isn't a reason to panic when the fundamentals just printed records. If you're looking to start a position, consider scaling in rather than buying all at once, since the next few weeks of chip-sector headlines could keep prices choppy.

Watch for three things: any update on supply constraints, commentary from customers on 2027 wafer-fab spending, and whether the stock can hold its post-earnings low. A clean revenue number near the high end of the $8.2 to $9.0 billion range would go a long way.

Bottom line: Lam's results were strong, but expectations were stronger. The business is fine; the stock needed to digest.