While much of the hoopla surrounding Artificial Intelligence (AI) is focused on GPU companies like Nvidia and AMD, Semiconductors are the backbone of the digital architecture that creates cyberspace environments which allow AI to exist. 

The semiconductor industry is estimated at $133 billion. There are only 2-3 major competitors for each vertical supplying an aspect of semiconductor technology, so a rising tide lifts all boats analogy is at work for the overall growth rate of the industry. 

Comparable to the warlord families that rule different territories in Game of Thrones or the Italian Mafia Five Families, the semiconductor verticals each have a “king” that leads the industry in its respective specialties.

• ASML Holding NV (NASDAQ: ASML) – Netherlands-based ASML provides machines that perform cutting edge lithography for transfer of chip designs onto wafers.
• Applied Materials (NASDAQ: AMAT) – Applied Materials has one of the broadest catalogs of semiconductor equipment services and software selections in the industry.
• KLA Corp. (NASDAQ: KLAC) – is a manufacturer of wafer fabrication equipment, process control, and dominates in metrology, which is yield management quality control for semiconductors and nanoelectronics.
• Tokyo Electron (ADR – OTC:TOELY) – Provides Semiconductor Production Equipment (SPE) with a focus on deposition, and, to a lesser extent, etching.
•  LAM Research (NASDAQ: LRCX) – The industry leader in etching and deposition 

These 5 companies account for $93 billion in revenue, representing 66% of the semiconductor industry.

Why This Tech Investor Is Bullish on LAM Research

On 24/7 Wall Street’s AI Investor Podcast, technology fund manager Eric Bleeker spoke about LAM Research and some underlying reasons for his bullish analysis.

Financial Fundamentals: (all based on market statistics at the time of this writing)

• LAM Research has a $104 billion market cap, $15.6 billion in trailing revenues,  $4.1 billion in earnings, and $4.8 billion of free cash flow.
• Pricewise, LAM Research is trading at roughly: 23X trailing earnings, 20x forward earnings, and 19X cash flow – all of which are below the market average

Politics: 

LRCX was down for 2024 but up 8% in December 2024. The depressed price is attributed to Biden Administration export restriction rules effective as of July 10, 2024, which were specifically targeted at limiting US tech access to China. 

Given that LAM Research’s sales to China comprise 42% of its normal sales, the export ban severely impacted revenues. As a result, despite 600% growth and a dominant semiconductor market sector position, LRCX is currently trading at an approximately 36% discount. 

Technological Advantage:

Etching and deposition each account for  28% of semiconductor cost, totaling 56%, with lithography next at 22%. As Bleeker explained, lithography transfers chip design; but it  is etching that engraves it into the wafer. Deposition adds the layers for memory and other elements to work in tandem for 3D and AI applications as subsequent designs gain complexity. 

According to Bleeker, LAM Research has 4 opportunities for billions in growth:

1. Gate All Around (GAA) – technology for designing enhanced transistor intricacies
2. Film -film deposition improves FR Filter, vertical 3D Nand and MEMS microphone performance. Application techniques include:

• Pulsed Laser Vaporization
• Plasma Enhanced Chemical Vapor
• Electrochemical
• Metal Plating
• Atomic Layering   

Film deposition also reduces the need for ASML machine use (ironically, LAM Research innovations have increased other rivals’ needs for ASML work). 

3. Backside Power – a benefit from AI; this reroutes power supply to the back of a chip, thus increasing logic density and performance power.

4. Advanced Packaging – addresses exponentially higher memory requirements from AI. Inference requires so many more parameters to be retained while processing that additional memory is crucial.  High bandwidth memory essentially stacks memory on the logic die so memory is stacked on top of a Nvidia, Broadcom or AMD chip and then drills down for access. LAM Research is the leader in Advanced Packaging of memory and its business grew from $300 million to $1 billion in 2024, with forecasts of going from $15 billion to $100 billion in the next 5 years. Currently, only 6% of LAM business is in Advanced Packaging, but that is likely to change with the continued evolution of AI.

Some analysts forecast that memory sales will outstrip chip sales in the near future, due to AI proliferation.

Although he didn’t mention it in the podcast, Dry Resist technology is also an area where LAM Research excels. Dry resist improves EUV lithography resolution, lowers costs, reduces defects, improves productivity, and uses less energy and raw materials than traditional resist processes, thus making it more sustainable. 

Placing the Bet – Serendipitous Timing?

 

Bleeker concluded the podcast interview with a declaration that he was investing $10,000 into LRCX stock. He also mentioned that he planned to monitor Advanced Packaging’s rival companies. He believes that pessimism from US export restrictions to China is overpriced and that a  Trump Administration is more inclined to negotiate a pro-US trade deal with China that gives concessions for tech in exchange for other areas that favor US policies. 

He noted that ByteDance (Tik Tok owner) is still Nvidia’s #2 largest buyer, despite reduced power in the export versions. However, in his estimation, Trump’s pro-trade stance will likely be a better environment than the regulation-happy Biden administration. 

Not too long after the podcast, an announcement from the White House regarding the new Stargate project, an AI joint venture project including Oracle, Softbank, and OpenAI, was announced, which boosted prices of LRCX and other companies with infrastructure ties to AI.

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