Lam Research (LRCX.US) shares plunge as guidance falls short of elevated expectations; Wall Street banks cut price targets but remain bullish on 2027 growth outlook.

Semiconductor equipment maker Lam Research (LRCX.US) shares fell about 10% even though the company's latest quarterly results beat market expectations, as its guidance for the next quarter failed to meet investors' previously elevated expectations due to supply-chain component shortages. Wall Street analysts believe supply bottlenecks are limiting Lam Research's ability to convert strong order demand into revenue, but with the global wafer fab equipment (WFE) market continuing to expand, the company's growth outlook for 2027 and beyond remains optimistic. Lam Research reported revenue of $8.219 billion for the first quarter of fiscal 2027 (ended September 2026), up 54.4% year over year and 22.3% quarter over quarter, above the market expectation of about $8.142 billion. Adjusted earnings per share were $2.20, $0.02 above market expectations. Non-GAAP gross margin for the quarter was about 52.4%, and operating margin reached 40.2%. However, the market's focus was not on the already-reported results but on the company's outlook for the quarter ending December 2026. Lam Research expects second-quarter fiscal 2027 revenue of $8.6 billion, plus or minus $400 million, which, while slightly above the consensus estimate of about $8.54 billion, was below the more optimistic forecasts of some investment banks. The company expects adjusted earnings per share of $2.18 to $2.48, with a midpoint of $2.33, broadly in line with the market expectation of $2.32. In a research report published on October 21, Goldman Sachs Group, Inc. noted that Lam Research's results and guidance were broadly in line with consensus, but because investors had widely expected the company to further raise its forecast, the report still disappointed the market. Goldman Sachs Group, Inc. had previously expected the company's December-quarter revenue to reach $8.87 billion, while Morgan Stanley's forecast was even higher at $9 billion. Supply-chain issues have become a key factor constraining near-term performance growth. Morgan Stanley noted that the semiconductor equipment industry has recently begun to see more pronounced component shortages, especially insufficient supply of printed circuit boards (PCBs), which has affected the assembly of key equipment components such as mass flow controllers (MFCs). In addition, some DRAM customers, due to delays in cleanroom construction, have postponed equipment orders originally scheduled for delivery in the December quarter to the March 2027 quarter. Lam Research management also acknowledged that without the recent supply-chain constraints, December-quarter revenue guidance could have been slightly higher. Needham therefore cut its price target on Lam Research by $100 to $290, believing that constrained supply of various components is affecting the company's near-term delivery capability. Morgan Stanley lowered its price target to $339 from $385 while maintaining an "Overweight" rating. The firm believes Lam Research's failure to meet elevated market expectations could prompt investors to reassess the growth pace of the entire semiconductor equipment industry. Previously, the market focused mainly on whether equipment makers could continue to deliver better-than-expected growth; now investors may begin to place more emphasis on potential constraints such as supply chains, capacity expansion and the progress of customers' fab construction. However, Morgan Stanley stressed that near-term supply bottlenecks do not mean industry demand is weakening. On the contrary, the annualized size of the wafer fab equipment market has expanded from about $125 billion to about $200 billion in just four quarters, and such rapid expansion itself has placed enormous pressure on the supply chain. The firm believes supply-chain constraints may defer the release of some equipment demand from 2027, thereby preventing the industry from expanding too quickly and helping extend the current semiconductor equipment investment cycle into 2028. At the same time, equipment makers building up inventory to cope with component shortages may also create new growth opportunities for upstream equipment component suppliers. Despite near-term delivery constraints, Lam Research's assessment of medium- and long-term industry demand remains positive. The company raised its forecast for the global wafer fab equipment market in 2026 to about $155 billion and preliminarily expects the market to exceed $200 billion in 2027, implying year-over-year growth of about 30%. Among this, DRAM investment is expected to be the main growth driver, followed by advanced foundry and logic chip investment, while demand for NAND flash equipment will also continue to grow. Goldman Sachs Group, Inc. noted that 10 new large wafer fabs are expected to begin operations in 2027, which will further support semiconductor equipment demand. At the same time, the adoption of gate-all-around (GAA) transistors, backside power delivery technology and advanced DRAM manufacturing processes is increasing the process complexity of chip manufacturing, creating more market opportunities for Lam Research's deposition and etch equipment. Goldman Sachs Group, Inc. maintained its "Buy" rating and $380 price target on Lam Research. The firm believes Lam Research has strong competitive advantages in advanced logic chips, DRAM technology upgrades and NAND equipment conversions, and is expected to achieve growth faster than the industry average in the coming years. In addition, Lam Research expects revenue from its customer support business to grow more than 30% in 2026 and still achieve growth of more than 15% in 2027. As AI drives memory chip capacity expansion, demand for intelligent equipment management and automated maintenance services is also continuing to increase. Morgan Stanley expects Lam Research's calendar 2027 revenue to be about $39.8 billion, rising further to $47.6 billion in 2028. Although the firm slightly lowered its near-term earnings forecasts, its view on the 2028 growth outlook is basically unchanged. RBC analysts also maintained an "Outperform" rating, believing the company has high visibility into order demand for 2027 and that systems equipment revenue is expected to outperform the overall wafer fab equipment market for a second consecutive year. Wells Fargo & Company analysts also said the pressure on Lam Research's share price stemmed mainly from investors' previously high expectations for a significant earnings beat and a guidance raise. Although supply-chain issues will become a near-term market focus, the firm remains optimistic about Lam Research's ability to outperform the wafer fab equipment industry in 2027 and continues to recommend buying the stock.