Micron Technology (NASDAQ: MU) recently reported outstanding results for the third quarter of fiscal 2026, which ended on May 28. The company not only exceeded Wall Street’s expectations but also provided guidance indicating that the strong demand for memory chips is expected to continue for the foreseeable future.
Following Micron’s stellar quarterly report, Micron stock surged nearly 16%, leading to a positive impact on other memory stocks, including Lam Research (NASDAQ: LRCX). Lam Research is a key supplier of semiconductor manufacturing equipment to chipmakers, foundries, and memory manufacturers. As a result of Micron’s performance, Lam Research’s shares also saw a significant increase of over 7%.
The robust demand for memory chips has led to Micron’s fiscal Q3 revenue soaring by 346% year over year to $41.5 billion. Notably, the company’s earnings per share witnessed an impressive growth of 1,215%. Micron’s management highlighted on the earnings call that the demand for dynamic random-access memory (DRAM) and NAND flash chips continues to surpass industry supply levels.
Moreover, Micron anticipates that the tight supply conditions will persist beyond 2027 due to increasing demand from various sectors such as data centers, high-end PCs, smartphones, vehicles, and robots. The company also mentioned that the demand for high-performance memory chips to support AI workloads is on the rise, prompting Micron to ramp up the build-out of new capacity significantly.
In line with this, Micron’s capital expenditure for fiscal 2026 is expected to reach $27 billion, nearly double the amount spent in fiscal 2025. Additionally, the company projects that its capital spending for fiscal 2027 will surpass that of fiscal Q4, with an estimated $10 billion in capital expenditure for the quarter, positioning fiscal 2027’s capex to exceed $40 billion.
It is worth noting that Micron is not the only memory manufacturer increasing its capacity. SK Hynix aims to double its wafer capacity over the next five years, while Samsung plans to invest a substantial $648 billion in South Korea over the next decade to bolster chip production.
The positive outlook for memory chip demand and equipment spending is expected to benefit Lam Research, as the company derives 39% of its revenue from selling memory manufacturing equipment. Additionally, Lam Research garners 54% of its revenue from the sale of foundry equipment, positioning the company well for sustained revenue and earnings growth in the coming quarters.
Looking ahead, Lam Research’s revenue has increased by 24.4% in the first nine months of fiscal 2026 to $16.5 billion. The company’s fiscal Q4 revenue guidance of $6.6 billion suggests that its total revenue for the year will reach $23.1 billion, marking a 25% increase over the previous year. Analysts anticipate a further spike in Lam’s revenue growth in fiscal 2027, with continued growth expected in fiscal 2028.
Given the ongoing memory shortage, with estimates suggesting that memory wafer supply will lag behind demand by 20% through 2030, Lam Research’s revenue and earnings growth could surpass market expectations over the long term. Analysts project Lam’s earnings to reach $9.91 per share in fiscal 2028, with potential for continued growth in the subsequent years.
Considering a scenario where Lam Research achieves 20% annual bottom-line growth in fiscal years 2029 and 2030, the company’s earnings per share could rise to $14.27 in four years. With Lam Research trading at 39.5 times earnings at that time, the stock price could potentially reach $564, representing a potential upside of 44% over the next four years.
In conclusion, the favorable market conditions driven by strong memory chip demand and ongoing supply shortages present an opportunity for investors to consider investing in Lam Research. With the company poised for continued revenue and earnings growth in the coming years, Lam Research remains a compelling growth stock with significant potential for further appreciation.
This article was originally published by The Motley Fool and written by Harsh Chauhan. The Motley Fool has positions in and recommends Lam Research and Micron Technology.
