SK Hynix's Strong Outlook Should Reignite Interest in Lam Research, Analyst Says

Strong results from South Korean memory chip giant SK Hynix should rekindle investor interest in semiconductor equipment maker Lam Research (LRCX), according to a note from Lynx Equity Strategies. The firm believes Lam's recent stock underperformance is temporary and does not reflect its underlying business strength.

Analyst's Take on Lam Research

Lynx Equity Strategies reiterated its $400 price target on Lam Research shares, suggesting the recent sell-off presents a buying opportunity. Analyst KC Rajkumar noted that Lam's stock decline, which followed a rare earnings miss, was exacerbated by a broader market downturn tied to concerns about AI-related debt and slowing growth.

This has led Lam's stock to trail the Philadelphia Semiconductor Index (SOX) for the first time this year, an underperformance the analyst does "not expect to last long." Lynx anticipates that long-term investors may add to their positions, encouraged by the potential for "aggressive share buybacks" that were implied on Lam's recent earnings call.

SK Hynix Results Signal Robust Demand

The positive outlook is largely fueled by the performance of key industry players. SK Hynix, a major customer of Lam Research, recently reported that its supply of high-demand DRAM and High Bandwidth Memory (HBM) chips is sold out through 2029. The memory maker also announced a $75 billion cash return to investors.

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According to Lynx, these developments suggest Lam's own business remains strong despite its recent report. "Results from Hynix, a key customer, and UCTT [Ultra Clean Holdings] a key supplier, indicate the earnings miss at LRCX was superficial; its underlying strength continues unabated," Rajkumar wrote.

Valuation and Market Context

Broader market sentiment is also improving, according to the note. Lynx cited approximately $150 billion in recent deal-making by companies like SpaceX, Meta, and Broadcom, along with Anthropic’s S-1 filing, as factors that have eased financing worries in the technology sector.

The firm's $400 price target is derived from a valuation of 30 times its 2029 earnings per share (EPS) estimate, discounted to its present value. Lynx stated it sees a long-term path for the stock to reach $500, concluding, "We see little reason to trim our PT, at odds with Street analysts."