Lam Research Reports Record Revenue Amid Supply Constraints
Lam Research (LRCX -0.02%), a company specializing in chipmaking equipment, announced on October 21 that it achieved record revenue. The firm noted that limited cleanroom capacity and parts shortages would hinder chipmakers and equipment manufacturers from fully satisfying demand until 2027.
The PHLX Semiconductor Index fell by 6.7% on October 22, marking its most significant drop since June 23. Lam saw a 12% decrease in stock price, while Micron Technology (MU +2.46%) dropped 6%, Advanced Micro Devices (AMD +1.74%) fell 8%, and Marvell Technology (MRVL +2.25%) declined by 9%.
Interestingly, Lam’s statement reflected a higher demand than what the industry can currently supply, rather than a downturn in demand. Furthermore, the projections from all three chipmakers remain optimistic. Personally, I believe this sell-off may present a good buying opportunity for all three companies.
Lam’s Challenge: Supply Issues, Not Demand
Lam’s revenue grew by 22% from the June quarter to reach $8.22 billion, which represents a 54% year-over-year increase. The company also anticipates generating around $8.6 billion in revenue for the December quarter.
“[T]his revenue guide would have been a bit higher if not for some near-term supply chain constraints,” said CFO Doug Bettinger during a recent earnings call.
Lam predicts that industry spending on chipmaking equipment will exceed $200 billion by 2027, ramping up from the mid-$150 billion level of this year. When asked about the potential figure without these constraints, Bettinger remarked that it “would be higher.”
Micron: Facing Cleanroom Shortages, Not Customer Lack
On September 30, memory manufacturer Micron indicated that supplies of DRAM and NAND—two key types of memory chips—are expected to remain tight through 2027 and 2028.
“We expect memory and storage supply-demand conditions to be much tighter in calendar 2027 and 2028 than they were in 2026,” stated CEO Sanjay Mehrotra in prepared remarks for that day’s call.
Reflecting the impact of limited supply, Micron reported that its revenue soared by 31% sequentially, reaching $54.2 billion for the fiscal fourth quarter of 2026, which concluded on September 3. Prices for DRAM rose by a high-teens percentage, while NAND prices surged by around 30%. Management forecasts that revenue may break records in the fiscal first quarter of 2027, nearing $61.5 billion, with continual growth anticipated throughout fiscal 2027. However, the stock has decreased by 29% from its record close on June 25, currently trading at approximately $856, or about five times projected earnings for fiscal 2027. This indicates that investors may be anticipating a downturn in memory profits, even though Micron’s outlook suggests otherwise.
AMD: Supply Growth is Key
AMD is also grappling with supply constraints. On October 6 in Taipei, CEO Lisa Su announced plans to significantly increase supply in 2027, indicating a need for further advanced wafer capacity.
During AMD’s earnings call in August, Su expressed confidence in meeting their targets, suggesting that the limitations highlighted by Lam may affect the extent to which AMD can exceed its plans, rather than the plans themselves. The company projected roughly $13 billion in revenue for the third quarter, marking a 41% year-over-year increase, with expectations that data center sales, particularly driven by AI chips, will more than double within the next year.
Currently, AMD shares are around $508, which is about 22% lower than their record close on October 6. The valuation corresponds to around 32 times earnings based on analysts’ expectations for 2027, implying that the market is already factoring in the anticipated growth in the data center sector.
Marvell: Aiming for Higher Profits
During its investor day on October 6, Marvell set a revenue target in the range of $70 billion to $90 billion for fiscal 2031 (ending early 2031), along with a non-GAAP adjusted operating margin of 44% to 46%. Management indicated that achieving the midpoint of these goals would equate to adjusted earnings surpassing $30 per share. Marvell reported $8.2 billion in revenue for fiscal 2026.
Revenue growth has already been accelerating, increasing from 28% year-over-year in the fiscal first quarter of 2027 to 37% in the second quarter (ending August 1). Management anticipates about $3.15 billion in revenue for the fiscal third quarter, which represents roughly a 52% increase compared to the previous year.
At this point, shares of Marvell are trading around $223, down 22% from their October 6 close. They are priced at about 31 times earnings based on analysts’ forecasts for fiscal 2028, which seems reasonable. However, it’s worth noting that this figure only corresponds to roughly 7 times the earnings that Marvell is targeting for fiscal 2031, which is still several years away. Additionally, Marvell relies on external manufacturers for its chips, so it somewhat depends on the same supply dynamics that Lam has pointed out.
Is the Sell-Off a Good Buying Opportunity?
None of these companies have downgraded their outlook, and with recent stock price declines, they might present a buying opportunity.
If I had to choose, I’d definitely consider Micron first. The tight supply situation is already pushing up its prices, and the current stock price seems to suggest a downturn that its own forecasts do not support.
AMD and Marvell, while pricier growth stocks, are worth pondering. However, they need their growth forecasts to materialize to justify their high valuations of over 30 times expected earnings. I think it might be wise to invest in these gradually, keeping in mind that a slowdown in AI spending could potentially impact all three companies. It’s a delicate balance for investors, for sure.
