Lam Research Corporation: Will This 5G Stock Soar to New Heights?

A High-Priced Stock With an Even Higher Price Target?

Judging by its nominal share price, Lam Research Corporation (NASDAQ:LRCX) looks expensive. Lam Research stock trades around $566.00 per share at the time of this writing, so to build a position of 100 shares, you’d need about $56,600.

But here’s the thing, investors don’t have to buy shares in round lots anymore (a round lot is 100 shares or a larger number of shares that’s evenly divided by 100). In fact, investors don’t even have to buy one whole share. There are quite a few brokerages that allow people to trade fractional shares, so a high nominal share price shouldn’t be a deterrent to budget-conscious investors.

And based on what Lam Research Corporation has been doing, LRCX stock might command an even higher share price.

Allow me to explain.

Headquartered in Fremont, CA, Lam Research supplies wafer fabrication equipment (WFE) and services to the semiconductor industry.

Lam Research might not be as well known as the semiconductor companies, but its technology is built into nearly every advanced chip on the market today. And as chipmakers get more investor attention in the 5G era, LRCX stock has the potential to be a surging 5G stock.

In fact, the company’s management has clearly identified 5G as a growth catalyst.

At a conference call in January, Lam Research’s president and chief executive officer, Tim Archer, said, “If we similarly look at the impact of a 5G phone market, we see that 5% incremental demand in 5G units has the potential to drive close to a billion dollars in incremental WFE.” (Source: “Lam Research Corporation (LRCX) CEO Tim Archer on Q2 2021 Results – Earnings Call Transcript,” Seeking Alpha, January 27, 2021.)

Last year, global 5G smartphone sales reached over 210 million units, but the adoption is still just getting started. This year, 5G smartphone sales are expected to reach over 530 million units worldwide. (Source: “Gartner Says Worldwide Smartphone Sales to Grow 11% in 2021,” Gartner, Inc., February 3, 2021.)

And because the 5G rollout is going to be a multi-year process, Lam Research could benefit from a strong secular tailwind.

According to Lam Research’s most recent investor presentation, semiconductor companies’ WFE spending was estimated as being in the high $50-billion range in 2020. For 2021, WFE spending is projected to be in the high-$60-billion to $70-billion range. (Source: “December Quarter 2020 Financial Results,” Lam Research Corporation, January 27, 2021.)

And if you look at the company’s financials, you’ll see that Lam Research is already firing on all cylinders.

In its most recent reporting period—the quarter ended December 27, 2020—Lam Research generated $3.5 billion of revenue, representing a 33.8% increase year-over-year and an 8.8% increase sequentially. (Source: “Lam Research Corporation Reports Financial Results for the Quarter Ended December 27, 2020,” Lam Research Corporation, January 27, 2021.)

The company’s adjusted earnings came in at $6.03 per diluted share in the December quarter, up 6.3% from the $5.67 per share generated in the September quarter.

For the March 2021 quarter, management is projecting revenue of $3.7 billion (plus or minus $200.0 million) and adjusted earnings of $6.55 per share (plus or minus $0.40 per share).

In other words, even if Lam Research reaches just the low end of its guidance range in the March quarter, it would have improved both its top- and bottom-line performances.

Lam Research Corporation (NASDAQ:LRCX) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Take a look at the above chart.

It shows that, since the end of 2020, Lam Research stock seems to have been traveling in an ascending channel, characterized by a series of higher highs and higher lows. On March 25, LRCX stock broke below its 50-day moving average and touched the lower trendline of the ascending channel that day.

But the downward push didn’t succeed, and the stock bounced back. At the time of this writing, Lam Research stock is above its 50-day moving average.

If the stock can continue its upward momentum, its next destination could be the upper channel line. Factoring in Lam Research Corporation’s potential as a 5G stock, it’s easy to see that, even though LRCX is not a cheap stock, there could be plenty of upside ahead.