1 Best Growth Stock Down 30% to Buy Right Now

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

Lam released its fiscal fourth-quarter 2024 results (three months ended June 30) on July 31, and its results far exceeded analysts’ expectations. More importantly, the semiconductor manufacturing equipment supplier’s forecasts also topped Wall Street’s.

Let’s take a closer look at Lam’s latest results and see why investors should take advantage of the stock’s recent decline.

Lam Research set to return to growth this year thanks to AI

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

However, fiscal 2024 total revenue 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 final quarter of the fiscal year, and management’s forecast indicates that the momentum will continue.

The company is forecasting $4.05 billion in revenue for the current quarter (at the midpoint of its range). That would be a 16% increase from the prior-year period. Meanwhile, its earnings estimate of $8.00 per share (also at the midpoint of its range) would represent a 17% year-over-year improvement.

However, there is a strong possibility that Lam could beat its forecasts thanks to increased memory usage resulting from the rapidly growing adoption of artificial intelligence (AI). During its latest earnings conference call, Lam management said the company is seeing additional demand due to increased investment in high-bandwidth memory (HBM) capacity.

HBM is being deployed in data centers to support AI workloads due to its ability to process massive amounts of data while maintaining low power consumption. Not surprisingly, HBM demand is forecast to grow from 478 million gigabytes (GB) in 2023 to nearly 1,700 million GB next year, with memory manufacturers dedicating more of their production capacity to HBM.

Memory Manufacturer SK HynixFor example, the company is expected to invest about $60 billion in AI-related memory such as HBM by 2028. SAMSUNGOn the other hand, the company is expected to triple its HBM production capacity this year. Micron Technology aims to more than triple its share of the HBM market by next year by investing in new manufacturing facilities in the US and Malaysia.

Strong demand for memory chips, driven by AI, points to a long-term growth opportunity for Lam, as 36% of its total revenue came from memory manufacturing equipment sales in the last quarter.

This solid target market opportunity is also why analysts expect Lam’s revenue to grow 17% in fiscal 2025, and then the company will post another solid performance next year.

Data by YCharts.

More reasons to buy stocks

We’ve already seen that Lam is on track to deliver healthy revenue growth in the current quarter and through fiscal 2025. Based on analyst estimates for earnings over the next three years, that growth should also translate to net income.

Data by YCharts.

Investors can still buy this AI stock at a reasonable valuation. Lam is trading at 28 times its most recent quarterly earnings, while the 22 times its prior-year earnings multiple underscores the earnings growth the company is poised to achieve. That’s cheaper than the average price-to-earnings ratio of 33 in the U.S. tech sector. Given the strength of Lam’s recent results, the recent sell-off presents an attractive buying opportunity.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Lam Research. The Motley Fool has a disclosure policy.