Semiconductor equipment maker Lam Research (NASDAQ: LRCX) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 27.7% year on year to $5.32 billion. On top of that, next quarter’s revenue guidance ($5.2 billion at the midpoint) was surprisingly good and 8% above what analysts were expecting. Its non-GAAP profit of $1.26 per share was 3.3% above analysts’ consensus estimates.
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Lam Research (LRCX) Q3 CY2025 Highlights:
- Revenue: $5.32 billion vs analyst estimates of $5.24 billion (27.7% year-on-year growth, 1.6% beat)
- Adjusted EPS: $1.26 vs analyst estimates of $1.22 (3.3% beat)
- Adjusted Operating Income: $1.86 billion vs analyst estimates of $1.78 billion (35% margin, 4.6% beat)
- Revenue Guidance for Q4 CY2025 is $5.2 billion at the midpoint, above analyst estimates of $4.81 billion
- Adjusted EPS guidance for Q4 CY2025 is $1.15 at the midpoint, above analyst estimates of $1.03
- Operating Margin: 34.4%, up from 30.3% in the same quarter last year
- Free Cash Flow Margin: 29.9%, down from 35% in the same quarter last year
- Inventory Days Outstanding: 141, down from 152 in the previous quarter
- Market Capitalization: $182.9 billion
"Lam's innovations are helping our customers address major AI-driven semiconductor manufacturing inflections," said Tim Archer, Lam Research's President and Chief Executive Officer.
Company Overview
Founded in 1980 by David Lam, the man who pioneered semiconductor etching technology, Lam Research (NASDAQ: LRCX) is one of the leading providers of wafer fabrication equipment used to make semiconductors.
Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Lam Research’s sales grew at an impressive 12.1% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Lam Research’s annualized revenue growth of 11.2% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong. 
This quarter, Lam Research reported robust year-on-year revenue growth of 27.7%, and its $5.32 billion of revenue topped Wall Street estimates by 1.6%. Beyond the beat, this marks 6 straight quarters of growth, showing that the current upcycle has had a good run - a typical upcycle usually lasts 8-10 quarters. Company management is currently guiding for a 18.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 4.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Lam Research’s DIO came in at 141, which is 21 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Lam Research’s Q3 Results
Revenue and EPS both beat in the quarter. We were also impressed by Lam Research’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. We were also glad its inventory levels shrunk. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 2.7% to $145.21 immediately after reporting.
Indeed, Lam Research had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
