Lam Research Projects Strong FY26, But China-Driven Growth Faces Market Skepticism

Lam Research (NASDAQ:LRCX) delivered stronger-than-expected earnings and raised its full-year guidance, driven by robust demand from China that defied broader industry headwinds.

However, despite the upbeat tone and improved outlook, shares of the chipmaking equipment giant fell more than 5% in Thursday trading, as investors questioned the durability of growth driven largely by a geopolitically sensitive region.

In its fiscal fourth quarter, Lam reported adjusted earnings of $1.33 per share on revenue of $5.171 billion, both figures surpassing Wall Street estimates of $1.20 and $4.997 billion, respectively.

Also Read: Why Lam Research Outpaced Market With 40% Gain In 2025

The company also issued an optimistic forecast for the first quarter of fiscal 2026, projecting adjusted EPS in the range of $1.10 to $1.30 on revenue between $4.9 billion and $5.5 billion, well above consensus estimates of $0.98 and $4.607 billion.

Driving the outperformance was a sharp uptick in orders from China, prompting Lam to revise its 2025 wafer fabrication equipment (WFE) market forecast upward from $100 billion to $105 billion. Analysts noted that the company's momentum in China now sets it apart from peers, particularly as consensus had expected the region's WFE spend to decline this year.

Needham analyst Charles Shi, who maintained a Buy rating and lifted his price forecast from $110 to $115, described the quarter as a "strong beat-and-raise," underscored by demand in China and renewed multinational investment.

According to Shi, China accounted for over 35% of Lam's revenue in the second quarter, up from 31% in the first quarter, and is expected to remain at that level in the third quarter.

Shi also pointed to a $700 million sequential increase in deferred revenue as a clear sign of an expanding backlog, with over $1 billion in China-related orders expected to be fulfilled in the second half of 2025.

However, management's early read on the calendar fourth quarter suggests a potential revenue pullback toward earlier-year levels, signaling that the China-driven surge may be nearing its peak. This dynamic, Shi warned, could add fuel to ongoing concerns that Lam is "overearning" in the Chinese market.

Still, Shi raised his 2025 EPS estimate by 4% and bumped his 2026 revenue forecast by 2%, citing the stronger-than-expected baseline. Yet he acknowledged the market's growing skepticism over whether Lam's performance represents structural strength or a short-lived spike in demand.

Goldman Sachs analyst James Schneider echoed that ambivalence. While reiterating a Buy rating and $115 price forecast, Schneider noted that Lam's results were impressive across the board, not merely a China story.

He acknowledged investor positioning had already been bullish heading into the print, possibly limiting the upside reaction despite the beat.

Schneider highlighted rising demand in both logic and memory segments as contributing to the revenue beat. China sales rose to 35% of total revenue, supported by both domestic firms and record multinational investments.

Lam's updated WFE forecast is in line with Goldman's projections, and the company expects spending in the second half of 2025 to remain flat versus the first half.

Looking ahead, Schneider believes Lam is well-positioned to outperform peers, thanks to its strong foothold in deposition and etch technologies, critical processes in advanced semiconductor manufacturing, as well as its exposure to NAND and High Bandwidth Memory (HBM).

He sees the company's NAND upgrade momentum, particularly as memory suppliers increase layer counts, as a structural tailwind through 2026.

Price Action: LRCX stock is trading lower by 5.10% to $94.02 at last check Thursday.

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