1 High Growth Stock 30% to buy Hand Over Fist right now

After a promising performance in the first half of the year, Lam Research (LRCX 1.10%) the stock has been in the cage lately. It has lost 30% of its value since hitting a 52-week high on July 11, but the company’s latest results indicate that this pullback could be a buying opportunity.

Lam released results for the fourth quarter of fiscal 2024 (for the three months ended June 30) on July 31, and its numbers were well above analysts’ expectations. More importantly, the semiconductor manufacturing equipment supplier’s guidance also beat Wall Street’s outlook.

Let’s take a closer look at Lam’s latest performance and find out why it’s a good idea for investors to take advantage of the stock’s recent pullback.

Lam Research is poised to return to growth this year, thanks to artificial intelligence

Lam Research reported fourth-quarter fiscal revenue of $3.87 billion, topping the consensus estimate of $3.82 billion. The company’s top line grew nearly 21% year over year. More importantly, its non-GAAP earnings per share rose 36% to $8.14, well above analysts’ consensus of $7.58 per share.

However, total revenue for fiscal 2024 fell 14% to $14.91 billion, and non-GAAP earnings fell 11% to $30.30 per share. Lam’s financial performance improved significantly in the last quarter of the fiscal year, and management’s guidance indicates that the momentum is here to stay.

The company estimated revenue of $4.05 billion for the current quarter (mid-range). This would be a 16% increase over the previous year period. Meanwhile, its earnings estimate of $8.00 per share (also in the middle) would translate to a 17% year-over-year improvement.

However, there is a good chance that Lam will exceed its guidelines due to increased memory consumption from the rapidly growing adoption of artificial intelligence (AI). On its latest earnings call, Lam management said the company is witnessing additional demand due to increased investment in high-bandwidth memory (HBM) capacity.

HBM is deployed in data centers to tackle AI workloads due to its ability to process huge amounts of data while keeping power consumption low. Not surprisingly, HBM demand will grow from 478 million gigabytes (GB) in 2023 to nearly 1,700 million GB next year. Therefore, memory manufacturers are allocating more of their capacity to produce HBM chips.

Memory maker SK Hynixfor example, it is expected to spend about $60 billion on AI-related memory investments such as HBM by 2028. Samsungon the other hand, HBM is expected to triple its capacity this year. Micron technology aims to more than triple its HBM market share by next year with investments in new manufacturing facilities in the US and Malaysia.

Robust demand for AI-driven memory chips points to a secular growth opportunity for Lam, as the company generated 36% of its total revenue last quarter from sales of memory manufacturing equipment.

This solid end-market opportunity is also why analysts expect Lam’s revenue to grow 17% in fiscal 2025, followed by another solid showing next year.

Data by YCharts.

More reasons to buy the stock

We’ve already seen that Lam is on track to deliver healthy top-line growth in the current quarter and in fiscal 2025 overall. Based on analysts’ earnings estimates for the next three years, that growth should trickle down to the bottom line as well.

Data by YCharts.

Investors can still buy this AI stock at an affordable valuation. Lam trades at 28 times trailing earnings, while the forward earnings multiple of 22 highlights the earnings growth the company is expected to produce. That’s cheaper than the US tech sector’s average price-to-earnings ratio of 33. And given the strength of Lam’s latest results, the recent selloff presents an attractive buying opportunity.