瑞银复盘泛林集团强劲业绩与指引，维持买入并正向读到应用材料和Ultra Clean

LRCX's results and guidance were very strong, particularly the service business as NAND customers are trying to increase bit production with limited wafer volume expansion - a theme we have discussed. LRCX is not guiding CQ4, but the industry now looks to be run-rating ~$170-175B in WFE in CQ4 and this is before we really see the bulk of the systems growth over the next 6-8Qs - ergo, WFE looks very likely to exceed (maybe materially) $200B next year with $250B an increasingly pedestrian number in C2028. Against this backdrop, markets where LRCX is relatively over-indexed (like NAND and advanced packaging) are inflecting and the company continues to win process steps where it has home-field advantage (e.g., conductor etch) such that it should continue to outgrow the market (WFE share up ~400bps over the past 3yrs - see Figure 9LRCX - WFE Share by Segment), and believe these new applications to be the ones where LRCX should have the most pricing leverage. A pushback to our bullish view that we heard last night was that NAND has somehow "peaked" so it will become harder for LRCX to keep out-growing WFE. We would push back on this because NAND has snapped back, but off a very low F1H base and is annualizing over the past 2Qs to ~$20B in NAND WFE - a number that should still grow as the smartphone market starts to come back and layer migrations continue prior to wafer capacity additions (still a ways away). Net of this, we tweak C2027 EPS slightly higher (now $12.16 vs. Street $9.36 pre-call) and C2028 remains largely unchanged at ~$16.50. After the pullback, this puts the stock at only ~20x C2027E and ~15x C2028E - highly attractive levels if one believes this AI super cycle is sustainable (which we do). On the back of our new numbers, our PT remains $435 and we maintain our Buy rating.
Key Highlights
Results/guidance
Revenue of $6.722B was a record and landed in the upper end of LRCX's range, with non-GAAP gross margin of 52.0% also pushing well above the high end of guidance on favorable customer/product mix plus improved factory efficiencies, and some pricing; non-GAAP EPS was $1.82 (above the high end). The Sep Q guidance stepped up materially to $8.10B +/- $0.4B, even above our Street-high $7.5B pre-call. The company also guided to 52.0% ± 1% gross margin and $2.15 ± $0.15 in non-GAAP EPS. On profitability, management provided an updated LT outlook, explicitly indicating expectations for gross margin in the mid-50% range and OpM in the mid-40% range over the next several years (more below).
Sep Q modeling details
When queried on the call and in our callback, LRCX suggested that service business contributions should be roughly flat or only slightly higher into the Sep/Dec Qs. That implies systems need to be up an impressive 30%+ Q/Q in the Sep Q (UBSe +33% Q/Q to $5.65B) - which management says is nothing unusual and does not include any one-time occurrences. However, by December, Q/Q systems shipments should actually moderate to ~10% Q/Q (UBSe ~$6.2B) - but the key point here being that, by then, WFE should already be run-rating ~$190B.
WFE share
Consistent with commentary on the call that it is now on track to reach its high-30% SAM (as a percentage of WFE) faster than what it outlined at the Investor Day, we continue to view LRCX as the big share gainer as technology spending starts to fill in around all of the litho spend over the past few years. Indeed, we now model LRCX WFE share to grow from ~11.5% in C2025 to ~13.5% in C2026 (+200bps Y/Y) and reach >15% out in C2027. Importantly, we note current share gains to be practically solely dependent on LRCX's DRAM and F/L execution - both being verticals where the company has historically lagged peers - rather than a strong NAND environment considering its C1H26 NAND revenue is actually down ~7% Y/Y.
GM/OpM (profitability) update
LRCX struck a bullish tone on the call by providing updated profitability targets that call for gross margin in the mid-50% range and operating margin in the mid-40% range over the next several years - all of which is very much consistent with our recent work on semicap ASPs & pricing dynamics where, in a base-case assumption of cumulative SPE price increases of +5% out to C2028, LRCX gross margin would reach ~55.6% and operating margin ~46.6%, effectively aligning with the company's updated long-term targets.
Capacity update
In our callback, we asked LRCX for an update on its capacity plans. While stopping short of announcing new capacity, management acknowledged that supporting $250B+ in WFE would likely require a third manufacturing site, and commentary around the company's willingness to build cash ahead of future capex spending suggests planning to already be underway. That said, management emphasized that ongoing capacity expansions across the US, Korea, and Taiwan are designed to bridge near-term demand.
Read-Across
LRCX's tone on WFE reads positively for AMAT given bullish DRAM/Advanced Packaging demand commentary. It's also worth noting a positive read for UCTT, given its significant share of LRCX's COGS and the fact that LRCX's inventory balance increased modestly Q/Q.
Valuation: PT to $435 (unchanged)
We maintain our PT at $435. We apply a consistent ~26x NTM PE multiple to our C28E Non-GAAP EPS of $16.47 (unchanged).