Goldman Sachs Maintains "Buy" Rating on Lam Research (LRCX.US): Q3 Results Meet Expectations, 2027 WFE Outlook Exceeds $200 Billion

According to Financial Intelligence App, Goldman Sachs released a research report stating that with both the performance and guidance in line with expectations, and considering the supply chain shortage in December, investor expectations remain relatively high. Therefore, Lam Research (LRCX.US) stock is expected to decline slightly after earnings. Goldman Sachs maintains a "Buy" rating on Lam Research with a target price of $380.

However, the report also points out that investors' positions before the earnings report are still relatively overweight, reflecting an optimistic view of an industry upcycle—there could be as many as ten new Tier-1 wafer fabs going into production by 2027. What encouraged Goldman Sachs was that management provided a preliminary outlook that wafer fabrication equipment (WFE) spending would exceed $200 billion in 2027, led by DRAM, followed by advanced foundry/logic and NAND; Goldman expects this number will be revised upward in the coming quarters.

There are four reasons for maintaining the "Buy" rating: Lam Research has substantial exposure in deposition and etch processes related to gate-all-around (GAA) and backside power delivery, continuously rising DRAM market share, a solid share of NAND equipment upgrade business, and improved WFE visibility for 2027 and beyond. In addition, Goldman Sachs believes Lam’s accelerated share repurchase program signals management’s confidence in further upside from current share price levels.

Impact on covered peers: Goldman Sachs expects Applied Materials (AMAT.US) to react slightly negatively in the short-term due to its end-market exposure, which is similar to Lam’s. This is an inference regarding peer stock reactions and not a rating adjustment for Applied Materials.

Q3: Overall In Line; Strong System Segment, Weak Services

Lam Research’s revenue in Q3 was $8.219 billion, slightly above Goldman’s $8.207 billion and the Street’s $8.181 billion; up 22.3% quarter-on-quarter and 54.4% year-on-year. Breaking it down, the structure is imbalanced: system revenue reached $5.733 billion, 6.9% above Goldman and 2.7% above Street estimates; service business (CSBG, Customer Support Business Group) revenue was $2.487 billion, 12.5% below Goldman and 0.9% below Street, marking the biggest gap this quarter.

Gross margin stood at 52.4%, 16 basis points below Goldman and 22 basis points above Street; operating margin was 40.2%. Non-GAAP EPS was $2.20, below Goldman’s $2.25 and just under Street’s $2.21.

According to the report, system and service revenues accounted for roughly 70% and 30% of total revenue respectively in Q3. The service business fell 12.5% short of Goldman’s forecasts, representing the largest deviation in this quarter’s earnings structure.

Q4 Guidance: In Line with Street, but Below Goldman

The company guides for Q4 revenue at a midpoint of $8.6 billion (range $8.2–$9.0 billion), below Goldman’s $8.867 billion but consistent with Street’s $8.617 billion; representing sequential growth of 4.6%–8.0%, year-on-year growth of 60.9%–65.9%.

Gross margin guidance is around 52.5% (Goldman: 52.7%, Street: 52.1%); operating margin guidance is 40.5%, closely matching Goldman’s 40.7% and above Street’s 39.9%. Non-GAAP EPS guidance is $2.18–$2.48, midpoint $2.33, below Goldman’s $2.47 and in line with Street’s $2.34.

Biggest Increment This Time: Preliminary 2027 WFE Outlook Exceeds $200 Billion

Lam raised its 2026 WFE growth outlook to the mid-$150 billion range and issued a preliminary outlook for 2027 WFE exceeding $200 billion (roughly 30% growth), led by DRAM with foundry/logic and NAND following. Management remains optimistic about the 2027 WFE landscape, citing 10 new Tier-1 wafer fabs set to commence operations that year.

Rising chip complexity continues to expand Lam’s addressable market: GAA and backside power delivery are driving greater process intensity, DRAM node transitions support market share gains, and NAND technology upgrades favor equipment retrofit business. Goldman does not provide a category breakdown for the 2027 WFE figure, only highlighting the order of growth.

Gross Margin Path and Services: No Change to 50% Target

Despite declining revenue from China, the company continues to guide for a Q4 gross margin of around 52.5%. Management reaffirmed confidence in achieving a mid-term target of around 55%, supported by pricing, product differentiation, scale efficiencies, reliability, and localized manufacturing.

For the service business, Lam expects CSBG revenue to grow over 30% in CY26 and over 15% in CY27. AI-driven capacity demand is accelerating adoption of Equipment Intelligence and Dextro, with preventive maintenance automation doubling in scale since 2026, and deployment expanding from NAND into DRAM.

Valuation and Target Price

Goldman’s $380 target price is based on normalized EPS of $10.75 and a 35x P/E multiple. The three scenarios are: Base case $10.75 × 35 = $380 (upside of 45.7% from current price); Bull case $12.36 × 35 = $433 (upside of 66.0%); Bear case $9.14 × 25 = $228 (downside of 12.6%). Adding a 0.4% dividend yield, the potential total return is 46.1%.

As of October 21 closing price, the company’s market cap is $327.9 billion, enterprise value $320.1 billion, and the average daily trading volume over the past three months is about $2.8 billion. Notably, the $380 target price has not been adjusted since July 5, 2026, while the share price has dropped from $351.41 at that time to $260.81, which has widened the paper upside to 45.7%.

The target price history attached to the research report shows that Goldman has continuously increased Lam Research’s target over the past two years: $85 in January 2025, $115 in July 2025, $160 in October 2025, $180 in January 9, 2026, $262 in January 29, 2026, $290 in April 23, 2026, and $380 in July 5, 2026. Corresponding closing prices at those times were $74.65, $101.06, $142.54, $218.36, $248.17, $258.56, and $351.41.

In other words, the $380 target price has not been adjusted since July 5, and the stock price has fallen from $351.41 then to $260.81 as of October 21, a decline of approximately 26%. This gap is what has raised the apparent potential upside to 45.7%, rather than any increase in the target price itself.

The key downside risks listed by Goldman are: (1) Softer DRAM/HBM demand; (2) Delays in planned cleanroom and wafer fab expansions; (3) Unit content growth from advanced packaging and 3D architectures falling short of expectations. All three are risk warnings, not already materialized negative developments, and should not be cited as indication of Goldman having downgraded its industry outlook, which remains premised on the "2027 WFE exceeding $200 billion" baseline scenario.