Is Lam Research the Hidden Gem of the Tech Sector?

The California Gold Rush of 1849 is a well-known story, but many who journeyed west seeking gold found little of it. Surprisingly, it was the sellers of supplies to these prospectors who became wealthy. This historical anecdote serves as a reminder that sometimes fortune lies in unexpected places. Lam Research (NASDAQ: LRCX), a company making high-tech tools for semiconductor manufacturing, may well be this moment’s overlooked investment opportunity.

Understanding Lam Research’s Role

You might not have heard of Lam Research, and that’s not unusual. With a market cap of $100 billion, it doesn’t produce consumer goods directly. However, Lam Research manufactures essential tools for creating technology, including semiconductors, which power nearly every device we use today. Their Semiverse software likely played a role in designing the chips in your phone or computer.

Furthermore, the company recently launched the semiconductor industry’s first collaborative robot, Dextro, which aids microchip engineers by performing complex tasks, enhancing efficiency and productivity. While consumers may not be aware of it, Lam Research is vital in ensuring that the high-tech products we rely on are developed and manufactured effectively.

Why Invest in Lam Research?

With a firm foothold in the semiconductor industry, one might wonder if investing in Lam Research is a smart choice right now. Despite facing revenue challenges last year, largely due to pandemic-related sales restraints, the company is on track to grow its earnings by 16% this fiscal year, with another anticipated 13% increase next year.

Lam’s profitability has improved significantly since its acquisition of Coventor a decade ago. The company’s advanced systems, such as the Corvus etching and Coronus cleaning platforms, have bolstered manufacturing yields for foundries. Innovations like the Striker FE platform are designed for the next generation of memory chips, further supporting Lam’s growth in the tech sector.

Now Might Be the Time to Buy

Investing in shares of Lam Research could be timely, especially with the stock currently down by 30% since its peak in July. This pullback followed second-quarter results that, although positive, didn’t meet higher expectations, leading to a modest 2.1% sales growth. However, recent signs of recovery suggest that many investors view this slowdown as temporary, likely to revert to double-digit growth again.

Should You Invest $1,000 in Lam Research Now?

Before making a decision, it’s important to note that Lam Research was not among the top picks identified by the Motley Fool Stock Advisor. This service recommends stocks that could yield substantial returns in the coming years. For context, if an investor had purchased shares of Nvidia when it was recommended in 2005, their $1,000 investment would have grown to approximately $800,876 today.

Stock Advisor offers valuable insights for building a successful portfolio with two new stock picks each month. Since its inception in 2002, Stock Advisor has outperformed the S&P 500 significantly.

James Brumley does not hold any position in the mentioned stocks. The Motley Fool, however, has a position in and recommends Lam Research. For more details, please view their disclosure policy.

The views expressed here are those of the author and do not reflect Nasdaq, Inc.’s views or opinions.