After a promising performance in the first half of the year, Lam Research (NASDAQ: LRCX) stock has been in the doghouse lately. It's lost 30% of its value since hitting a 52-week high on July 11, but the company's latest results indicate this pullback could be a buying opportunity.
Lam released fiscal 2024 fourth-quarter results (for the three months ended June 30) on July 31, and its numbers were well ahead of analysts' expectations. More importantly, the semiconductor manufacturing equipment supplier's guidance also bested Wall Street's outlook.
Let's take a closer look at Lam's latest results and find out why it's a good idea for investors to take advantage of the stock's recent pullback.
Lam Research is set to return to growth this year, thanks to AI
Lam Research reported fiscal Q4 revenue of $3.87 billion, ahead of the $3.82 billion consensus estimate. The company's top line increased almost 21% year over year. More importantly, its non-GAAP earnings per share jumped an impressive 36% to $8.14, well above the $7.58 per share analyst consensus.
However, total fiscal 2024 revenue was down 14% to $14.91 billion, and non-GAAP earnings declined 11% to $30.30 per share. Lam's financial performance improved significantly in the final quarter of the fiscal year, and management's guidance indicates that momentum is here to stay.
The company has guided for $4.05 billion of revenue in the current quarter (at the midpoint of the range). That would be a 16% increase from the prior-year period. Meanwhile, its earnings estimate of $8.00 per share (also at the midpoint) would translate to a 17% year-over-year improvement.
However, there's a good chance Lam could outperform its guidance thanks to an increase in memory consumption from the rapidly growing adoption of artificial intelligence (AI). On its latest earnings call, Lam management said the company is witnessing additional demand on account of an increase in high-bandwidth memory (HBM) capacity investments.
HBM is being deployed in data centers for tackling AI workloads because of its ability to process huge amounts of data while keeping power consumption low. Not surprisingly, the demand for HBM is forecast to increase from 478 million gigabytes (GB) in 2023 to almost 1,700 million GB next year. Memory manufacturers are therefore allocating more of their capacity to produce HBM chips.
Memory manufacturer SK Hynix, for instance, is expected to spend around $60 billion on AI-related memory investments such as HBM through 2028. Samsung, on the other hand, is expected to triple its HBM capacity this year. Micron Technology is aiming to increase its share of the HBM market by more than three times by next year with investments in new production facilities in the U.S. and Malaysia.
The robust AI-driven demand for memory chips points toward a secular growth opportunity for Lam as the company generated 36% of its total revenue last quarter from selling memory manufacturing equipment.
This solid end-market opportunity is also the reason analysts are expecting Lam's revenue to increase 17% in fiscal 2025, followed by another solid showing next year.
More reasons to buy the stock
We've already seen that Lam is on track to produce healthy top-line growth in the current quarter and fiscal 2025 overall. Based on analysts' earnings estimates for the next three years, that growth should trickle down to its bottom line as well.
Investors can still buy this AI stock at an affordable valuation too. Lam is trading at 28 times trailing earnings, while the forward earnings multiple of 22 highlights the earnings growth the company is expected to deliver. That's cheaper than the U.S. technology sector's average price-to-earnings ratio of 33. And given the strength of Lam's latest results, the recent sell-off presents an attractive buying opportunity.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research. The Motley Fool has a disclosure policy.
1 Top Growth Stock Down 30% to Buy Hand Over Fist Right Now was originally published by The Motley Fool