Evercore ISI: Lam Research revenue growth constrained by supply; firm bullish on equipment demand but cuts price target

Why did growth slow in the fourth quarter after third-quarter results beat expectations?

Lam Research reported revenue of 8.219 billion dollars in the third quarter of 2026, up 22% sequentially and 54% year over year, about 1% above market consensus. Adjusted earnings per share were 2.20 dollars, above consensus of 2 cents. Gross margin was 52.4%, up 0.4 percentage points sequentially.
The midpoint of the company’s fourth-quarter revenue guidance was 8.6 billion dollars, up about 5% sequentially; the midpoint of its EPS guidance was 2.33 dollars, broadly in line with market consensus. Management said recent component supply constraints would shift some shipments originally scheduled for the fourth quarter to the first quarter of 2027.
Revenue from China grew 65% sequentially in the third quarter, accounting for about 35% of total revenue. Management expects China revenue to decline in the fourth quarter, primarily from domestic customers. Evercore ISI’s model projects a 26% sequential decline in China revenue that quarter, while still showing 18% year-over-year growth.

Lam Research management raised its forecast for global wafer fab equipment spending in 2026 from slightly above 150 billion dollars to around 155 billion dollars, and expects spending to exceed 200 billion dollars in 2027. Growth is expected to come mainly from DRAM, advanced foundry and logic, and NAND.
Evercore ISI is more optimistic: it raised its baseline forecast for equipment spending in 2027 from 215 billion dollars to 235 billion dollars. Its rationale includes demand for AI memory and advanced logic chips, as well as its assumption that capital spending by major chipmakers will grow.
Under the firm’s model, Lam Research’s total revenue in 2027 will be about 38.3 billion dollars, up about 30% year over year; DRAM and NAND revenue will grow 45% and 39%, respectively. Management noted, however, that cleanroom space and the supply chain are both constraining equipment spending growth in 2027.

The transition to higher-layer-count NAND is expected to continue through 2027, driving demand for equipment upgrades. Management also noted that each increase of 1 percentage point in SLC’s share of NAND bit structure requires wafer capacity to increase by about 2%.
Demand for new NAND capacity is strong, but cleanroom space constrains expansion; management expects new capacity additions to increase only in the second half of 2028.
Lam Research’s customer support business generated 2.49 billion dollars in third-quarter revenue, up about 1% sequentially and about 40% year over year. The company expects the business to grow by more than 30% in 2026 and 15% in 2027, driven by NAND upgrades and stronger demand for spare parts and services.
On profitability, third-quarter gross margin benefited from pricing, product mix, and scale effects. Management expects near-term unfavorable customer mix to offset the benefits from pricing, new products, and scale, leaving gross margin roughly flat.

Evercore ISI believes semiconductor equipment is in the later stage of its cycle, where earnings upside could be partly offset by P/E multiple contraction. It therefore maintained its Outperform rating but lowered its Lam Research price target from 315 dollars to 280 dollars.
The firm assumes Lam Research will maintain about 12% of the wafer fab equipment market and forecasts revenue of about 46 billion dollars and EPS of 13.6 dollars in 2028. Its price target is based on a P/E of 23 times 2028 EPS, discounted back to 2027.
Historically, earnings estimate upgrades and valuation declines have occurred at the same time: during the 2017–2018 cycle, Lam Research’s earnings estimates rose 66%, while its P/E multiple fell from 15 times to 8 times.