Lam Research's Record Quarter Still Leaves a Valuation Test

Lam Research entered fiscal 2027 with record revenue, profit and earnings per share, but its stock still fell sharply after the report. The contrast explains the valuation debate: the business is performing at a peak level while investors question how much of the next semiconductor spending cycle is already reflected in the price.

For the quarter ended September 27, Lam reported revenue of $8.22 billion, up 22% from the June quarter. GAAP gross margin rose to 52.3% from 51.7%, and GAAP operating margin increased to 40.0% from 37.4%. Diluted reported earnings were $2.19 a share, compared with $1.81 in the June quarter. Those figures confirm that the margin improvement was not just an adjusted-accounting story.

The revenue mix also shows where the sensitivity lies. China accounted for 35% of September-quarter revenue, followed by Korea at 20% and Taiwan at 18%. Systems revenue was $5.73 billion, while customer support and other revenue contributed $2.49 billion. Demand for new fabrication tools is driving the step-up, but geographic concentration and export controls remain material risks.

Lam guided to $8.6 billion of December-quarter revenue, plus or minus $400 million. It also forecast GAAP gross margin of 52.5%, plus or minus one percentage point, and GAAP diluted earnings of $2.33, plus or minus $0.15. The midpoint implies another sequential revenue increase, although management said supply constraints limited the outlook and pushed some shipments into the March quarter.

The valuation is less forgiving than the recent share decline suggests. Trefis calculated that Lam traded at 34.1 times trailing earnings at the October 23 close of $230.10. That was far below the multiple at the end of June but above the level a year earlier and above its September-end readings from 2021 through 2024. A cheaper multiple after a steep fall is not the same as a historically cheap stock.

There is also a genuine growth case. Management expects spending on wafer fabrication equipment to exceed $200 billion in 2027, up from the mid-$150 billion range it expects for 2026. More complex chips require additional deposition, etch and cleaning steps, areas where Lam sells critical equipment. If delayed shipments move into the March quarter rather than disappear, near-term supply constraints would shift revenue timing instead of reducing demand.

The key question is whether Lam can sustain record margins as China becomes a smaller share of revenue and customers expand capacity. Investors now have three measurable tests: December-quarter revenue versus the $8.6 billion midpoint, the amount of delayed business that ships in March, and whether the broader equipment market follows management's 2027 forecast. Record results support the business case, but the remaining premium leaves little room for weaker spending or prolonged supply limits.