Episode Details

Lam Research Corporation (LRCX) Q4 FY2026 — Lam Research (LRCX), one of the four indispensable wafer-fab equipment makers alongside ASML, Applied Materials and KLA, reported fiscal Q4 2026 (quarter ended June 28, 2026) after the close on July 29: revenue $6.722B (+30.0% YoY, +15.1% QoQ), GAAP diluted EPS $1.81 and non-GAAP $1.82 (vs $1.68 consensus), GAAP gross margin 51.7% and operating margin 37.4% — records on essentially every line and above the high end of guidance. The real news was the guide: September-quarter revenue of $8.10B +/- $400M against a ~$7.09B consensus, with EPS of $2.15 vs $1.83 expected, gross margin 52.0% and operating margin 39.5% — above the top of Lam's own prior long-term model. FY2026: revenue $23.233B (+26.0%), net income $7.265B (+35.6%), diluted EPS $5.76. Under-covered: CSBG (installed-base spares/service on 100,000+ chambers) grew 42.6% YoY to $2.472B, FASTER than systems (+23.6%), and is now ~37% of revenue; China collapsed from 34% of revenue in March to 26% in June, with China dollars actually DOWN ~12% sequentially while total revenue rose 15% — every dollar of sequential growth came from outside China (Taiwan is now #1 at 27%); and FY26 free cash flow FELL 9.7% to $4.891B even as net income rose 36%, as receivables jumped 58% YoY and DSO stretched from 59 to 72 days, dropping cash conversion from 101% to 67%. Credit where due: Lam does NOT add back stock compensation — non-GAAP EPS $1.82 vs GAAP $1.81, a one-cent gap — and management cut buybacks to $247M in the June quarter (from $1.16B at ~$211/sh in March) while the stock made all-time highs above $430. Our normalized owner-earnings DCF on $9.3B of mid-cycle owner earnings (mid-cycle revenue $30B at a 37% operating margin, 9% discount, 3.75% terminal) lands fair value at $184 vs $264.30 after hours on July 29 — the price sits ~44% above value, ~30% downside. The reverse DCF says $264.30 requires ~11% owner-earnings growth every year for a decade, implying ~$80B of revenue by 2036 against a total WFE market of ~$140B today. Our call: AVOID, 4/5 — a superb business at a price that capitalizes the peak. Wall Street is at a $372.76 average target (39 buy / 10 hold / 1 sell), so we DIFFER sharply. Lam Research (LRCX) just printed the best quarter in its history and then guided even higher — and we still think you should avoid the stock at this price. That tension is the whole episode. Fiscal Q4 2026 (quarter ended June 28, 2026, reported after the close July 29): revenue $6.722B, up 30% YoY and 15% sequentially; GAAP diluted EPS $1.81, non-GAAP $1.82 against a $1.68 consensus; GAAP gross margin 51.7% and operating margin 37.4% — records, all above the high end of guidance. Then management guided the September quarter to $8.10B +/- $400M versus a ~$7.09B consensus, with EPS of $2.15 vs $1.83 expected and a 39.5% operating margin that sits above the top of Lam's own long-term model. Full-year FY2026 revenue was $23.233B (+26%) with net income of $7.265B (+36%) and diluted EPS of $5.76. We push past the headline into three things almost nobody covered. First, the Customer Support Business Group — spares, service and upgrades across an installed base of more than 100,000 process chambers — grew 42.6% YoY to $2.472B, FASTER than the systems business at +23.6%, and is now nearly 37% of revenue; though we're honest that CSBG also contains Reliant trailing-edge tools, so it isn't a pure annuity. Second, China fell from 34% of revenue to 26% in a single quarter, and in absolute dollars China revenue DECLINED about 12% sequentially while total revenue rose 15% — meaning every dollar of sequential growth came from outside China, with Taiwan now the largest region at 27%. The export-control and local-competition bear case has largely already been absorbed: China was 42% of revenue in FY2024. Third, and least discussed, free cash flow went backwards: FY26 FCF fell 9.7% to $4.891B while net income rose 36%, because receivables jumped 58% YoY against 30% r