Artificial intelligence (AI) is emerging as the biggest driver of Lam Research Corporation’s LRCX profitability, and it could help the company achieve a new high in the gross margin in the fourth quarter of fiscal 2026. Strong demand for advanced memory, foundry and packaging equipment is improving the product mix and allowing Lam Research to generate higher returns from its product portfolio.
In the third quarter of fiscal 2026, Lam Research reported a non-GAAP gross margin of 49.9%, up from 49.7% in the previous quarter and 49% a year ago. Revenues climbed 24% year over year to a record $5.84 billion, while non-GAAP earnings per share increased 41% to a record $1.47. The company also delivered a 35% non-GAAP operating margin, reflecting strong execution and disciplined cost management.
Management expects the momentum to continue. For the fourth quarter of fiscal 2026, Lam Research projected revenues of $6.6 billion at the midpoint and a non-GAAP gross margin of 50.5%, marking the first time the company has guided for a margin above the 50% level. This outlook is supported by higher demand for advanced etch and deposition tools used in AI chips and high-bandwidth memory production.
AI is also expanding Lam Research’s long-term growth opportunities. The company expects advanced packaging revenues to increase by more than 50% in calendar year 2026 as chipmakers invest in complex packaging technologies for AI processors. At the same time, management forecasts wafer fabrication equipment spending of about $140 billion this year.
If AI-driven investments remain strong and Lam Research continues improving its product mix, the company has a solid chance of delivering another record gross margin in the upcoming fiscal fourth quarter.
How Competitors Fare Against Lam Research
KLA Corporation KLAC and Applied Materials, Inc. AMAT remain two of the biggest competitors challenging Lam Research as AI-driven semiconductor demand lifts profitability across the equipment industry.
KLA focuses on process control, inspection and yield management solutions. As AI chips become more complex, semiconductor makers need more testing and monitoring tools to improve production efficiency.
KLAC's strong exposure to advanced logic and memory manufacturing has helped it maintain healthy margins and steady cash flow growth. The company's non-GAAP gross margin has been above 60% over the past several quarters.
Applied Materials has also benefited from rising AI and memory spending. In its last reported results for the second quarter of fiscal 2026, the company generated Semiconductor Systems revenues of $5.97 billion, supported by strong DRAM and advanced packaging demand.
Applied Materials continues to invest heavily in materials engineering and advanced chip packaging technologies, areas that are becoming increasingly important for AI servers and high-bandwidth memory. In the second quarter, the company's non-GAAP gross margin expanded 80 basis points year over year to 50%.
LRCX’s Share Price Performance, Valuation and Estimates
Shares of Lam Research have surged 153.9% year to date compared with the Zacks Electronics – Semiconductors industry’s rise of 54.9%.
Lam Research YTD Price Return Performance
From a valuation standpoint, Lam Research trades at a forward price-to-earnings ratio of 76.24, significantly higher than the industry’s average of 35.94.
Lam Research Forward 12-Month P/E Ratio
The Zacks Consensus Estimate for Lam Research’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 37.2% and 38.3%, respectively. Estimates for fiscal 2026 have been revised upward over the past 30 days, while estimates for fiscal 2027 have been raised northward over the past seven days.
Lam Research currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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