Why could Lam Research still outperform the equipment industry in 2027 even as Citi cuts its price target?

With the market expected to exceed $200 billion, why temper expectations?

Lam Research maintained its outlook for a wafer fabrication equipment (WFE) market of approximately $155 billion in calendar 2026, and for the first time offered a preliminary view that the market would exceed $200 billion in 2027, which it regards as a floor. Management expects DRAM to lead growth in 2027, followed by advanced foundry and logic, and then NAND.
The pace of expansion is constrained by the supply of cleanrooms and components. Citi therefore cautions against raising 2027 and 2028 WFE expectations above its respective forecasts of $224 billion and $286 billion: shortages of gas delivery components, DRAM, multilayer ceramic capacitors, PCBs and magnets, among other items, will limit equipment deployment.
Management said current shortages are more concentrated and less severe than during the pandemic, and that it has strengthened resilience by diversifying suppliers. But these bottlenecks affect the entire industry, and Lam Research is also constrained.

The changes brought by AI demand extend beyond capacity expansion. Three-dimensional stacking, advanced patterning, backside power delivery and advanced packaging increase the intensity of etch and deposition use in chipmaking, expanding the market Lam Research can serve. DRAM investment is concentrated in HBM and advanced nodes, while NAND is moving from 128 layers to more than 200 layers, and investment in 384-layer-class technology has also begun.
Citi expects Lam Research’s systems equipment revenue to continue outperforming WFE in 2027, but by a smaller margin than the approximately 8 percentage points it estimates for 2026. The company also reiterated that customer support business group (CSBG) revenue will grow by approximately 15% in 2027, above its long-term target model.
Regional performance is not uniformly rising in the near term: the company expects revenue from domestic Chinese customers to fall significantly in the quarter ending in December because of equipment shipment and project timing; multinational customers in China remain strong, and China’s share of total revenue is expected to be close to the level in the quarter ending in June.

Lam Research sees SLC-grade NAND as an emerging opportunity for low-latency caching and context storage in agentic AI. SLC storage has approximately one-third as many bits as TLC: according to the company’s calculations, for the same bit demand, each 1 percentage-point shift in the NAND demand mix toward SLC would require approximately 2% more installed wafer capacity.
This logic links a change in the product mix to additional capacity and equipment purchases. However, the company positions it as an emerging opportunity, and customers are only beginning to discuss applications; near-term additions to NAND capacity are limited, and significant incremental demand could materialize only if adoption accelerates.

Earnings per share for the first quarter of fiscal 2027 were $2.20, above Citi’s previous forecast of $2.16. Citi raised its earnings-per-share forecasts for fiscal 2027, 2028 and 2029 by approximately 4%, 5% and 5%, respectively, to $9.59, $11.92 and $13.90; the company’s fiscal year ends at the end of June.
Citi’s model forecasts revenue growth of 52% year over year in fiscal 2027, an increase in gross margin from 50.5% in fiscal 2026 to 52.5%, and core earnings-per-share growth of 65%. Revenue expansion combined with higher gross margin underpins the model’s forecast of faster profit growth than revenue growth.
Citi maintained its Buy rating but cut its price target from $450 to $435: the valuation uses calendar 2028 earnings, with the price-to-earnings multiple reduced from 36 times to approximately 33 times to reflect the decline in market valuations. At 33 times, it remains above the three-year average of 25 times; the premium is supported by an extended equipment cycle, AI demand, the contribution of service revenue and rising equipment spending intensity.