LAM RESEARCH CORP (LRCX) stock intrinsic value fair value estimate & owner earnings analysis

Lam Research makes the machines that deposit, etch and clean the thin layers on silicon wafers, steps every advanced chip needs many times over. In fiscal 2026 (year ended June 28, 2026) revenue rose 26.0% to $23.2 billion: $14.9 billion from new systems (up 29.5%, led by foundry customers) and $8.3 billion from customer support, spares and older-generation Reliant tools (up 20.2%). Gross margin was 50.5%. Four customers accounted for 16%, 15%, 12% and 12% of revenue; China was 34% of sales (42% in fiscal 2024), Taiwan 22% and Korea 19%. HOW WE MEASURE THE CASH. We count operating cash flow, remove swings in receivables, inventory, payables and deferred profit, subtract stock compensation ($386 million in fiscal 2026), and subtract only the capital spending needed to stay in business. On that basis owner earnings per diluted share went from $1.14 in fiscal 2017 to $5.20 in fiscal 2026, but about a quarter of that compounded rise came from a 31% smaller share count (1,838 million to 1,261 million diluted shares). To value the business before its lenders, we add back cash interest ($150 million in fiscal 2026) and subtract the debt separately. That business cash flow was $2.2 billion in fiscal 2017, $3.8 billion at the fiscal 2024 trough and $6.7 billion in fiscal 2026. It tracks revenue closely (25% to 29% of sales in each of the last six years), and it fell 16% in the fiscal 2019 downturn and 14% in fiscal 2024 when revenue fell 13% and 14%. One accounting judgement matters. Fiscal 2026 operating cash flow absorbed a $1.9 billion working-capital build, mostly a $1.96 billion rise in receivables; we remove it, as we do every year, which lifts fiscal 2026 owner earnings to $5.20 a share from about $3.68 if the build were left in. Receivables grew 58% while fourth-quarter revenue grew 30%, and five customers hold 72% of the balance. Roughly $1 billion of the build is more than revenue growth explains and the filing does not say why. We could not reconcile it, so we did not let fiscal 2026 set the earnings level. THE EARNINGS LEVEL. We use the median business cash flow of fiscal 2021 to 2026, $4.38 billion ($3.47 a share on today's shares). That window holds one full cycle: the 2022-23 peak, the fiscal 2024 trough and the recovery. Earlier years describe a much smaller business. Fiscal 2026 business cash flow grew 36.8%; our first-year assumption is about 11% lower than fiscal 2026 ($6.0 billion), so no deceleration has to reverse. The fourth quarter was the strongest of the year ($6.72 billion revenue, 15% above the third), so the start of the path sits above the median; remaining performance obligations were $2.43 billion at year-end. WHAT WE CREDIT AND WHAT WE LEAVE OUT. We credit no growth. Lam's long-run growth depends on chipmakers spending more on AI-related capacity, new chip structures and share gains, and none of that is contracted. Customer support revenue is a recurring base, but it includes Reliant tools and fell 11% in fiscal 2024. What persists beyond year ten is the earning power itself: a leading position in etch and deposition that has been kept up by multi-billion-dollar annual R&D ($2.38 billion in fiscal 2026) and a large installed base needing spares and service. We hold it flat, with no fade and no growth. BASE CASE ($60.50 a share). Business cash flow of $6.0 billion in fiscal 2027, $5.2 billion in fiscal 2028, then $4.38 billion a year indefinitely. The business is worth $59.64 a share. Lenders are owed $3.75 billion of notes. Their coupons average about 3.4% and run to 2060, so they cost less than the going rate, making them worth about $3.0 billion. The company holds $5.58 billion of cash; after keeping $1.5 billion to operate, it has $4.08 billion extra, so net cash is about $1.08 billion, or $0.86 a share. Business $59.64 plus net cash $0.86 gives $60.50. BEAR CASE ($41.55 a share). Chip equipment has had downturns far deeper than the two in our ten-year record (fiscal 2019 and 2024): in fiscal 2009 revenue fell 55%, from $2.47 billion to $1.12 billion. We repeat that depth: revenue falls by about half from the fiscal 2026 level during fiscal 2028, gross margin drops to about 42% and operating costs ($3.5 billion in fiscal 2026) are trimmed about 10%, leaving business cash flow near $1.25 billion at the bottom. The path is $5.0 billion in fiscal 2027, $1.25 billion, $1.6 billion, $2.4 billion, then $3.2 billion a year. The recovered level is permanently lower than in the base case. The filing says China sales are likely to be materially and adversely affected by export controls, which could also push Chinese customers toward local equipment makers, so we take away about $0.75 billion for losing half of China's share of sales and $0.45 billion for local competition on older-generation tools; these two sizes are our estimates. The business is worth $40.69 a share; the debt is covered with room to spare (the trough cash flow is about eight times annual interest and the nearest maturity, $1.0 billion of 4.0% notes in March 2029, is less than a fifth of cash on hand). With net cash of $0.86 a share the case is worth $41.55. BULL CASE ($77.78 a share). The fourth quarter's pace holds: business cash flow of $7.5 billion a year for fiscal 2027 to 2029 (the fourth quarter annualised, at about 28% of revenue), then a through-cycle level of $5.5 billion, just below the fiscal 2025-26 average of $5.8 billion, reflecting that the fiscal 2024 trough ($3.8 billion) sat far above the fiscal 2019 trough ($2.3 billion). The business is worth $76.93 a share, plus net cash of $0.86. CHECKING THE CASE. We tested China: its dollar sales rose to about $7.9 billion in fiscal 2026 from $6.3 billion in fiscal 2025 even as controls tightened, so the loss in the bear case is a risk in the filings, not something the record shows yet. We tested the base level: business cash flow troughed at $2.3 billion in fiscal 2019 and $3.8 billion in fiscal 2024, and the weakest of the last six years, $3.8 billion, was only 14% below $4.38 billion. MARGIN-OF-SAFETY PRICE ($32.00). We are fairly sure of the broad level of earnings, since business cash flow has stayed between $3.8 billion and $6.7 billion for six years including a trough, but not sure of where in that range the next cycle settles. Four customers are 55% of sales and China is 34%. The worst plausible outcome is a fiscal 2009-style halving combined with the loss of much of China; the structure would survive, since the notes are modest and long-dated and cash covers the nearest maturities, but an outright ban on China sales would put value below the bear case. If we are wrong about the through-cycle level, the shares are worth about $41.55 instead of $60.50; if we are wrong about the receivable build being timing, the starting years are weaker. The price assumes a three-year holding period. Over that period the business generates roughly $3.47 a share a year at the median level (about $10 over three years), part returned through dividends and repurchases. From $32, ending the period worth about $55 including that cash implies 20% a year, and the bear case implies a return in the mid-teens. At a much higher price the bear case leaves too thin a cushion for a cyclical company at a record-revenue point with a few large customers. Our previous published figures (August 2026) were prepared on a different basis and are not comparable.