What Happened?
A number of stocks jumped in the afternoon session after Micron's blowout day signaled that AI-driven chip demand is structurally undersupplied which is bullish news for the equipment makers and foundries that build the capacity.
Semiconductor manufacturing equipment (Applied Materials, Lam Research, KLA, ASML) and foundries (TSMC, GlobalFoundries) benefit when chip companies announce capacity expansions. Every dollar of additional Micron capex flows to the equipment makers that supply the tools, and every new fab Micron builds is a multi-year revenue stream for the foundries that share processes. UBS estimated Micron will spend $50B+ on capacity over the next 5 years. At industry-average tool intensity, that's billions of equipment orders.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Semiconductor Manufacturing company Photronics (NASDAQ: PLAB) jumped 5.6%. Is now the time to buy Photronics? Access our full analysis report here, it’s free.
- Semiconductor Manufacturing company Lam Research (NASDAQ: LRCX) jumped 5.6%. Is now the time to buy Lam Research? Access our full analysis report here, it’s free.
Zooming In On Lam Research (LRCX)
Lam Research’s shares are very volatile and have had 29 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago when the stock gained 2.8% on the news that AI chip leader Nvidia reported record sales and income, driven by what its CEO described as 'parabolic' demand for AI infrastructure.
The strong results confirmed investors' belief in a sustained AI-driven boom, lifting the entire semiconductor sector. Nvidia's success signals a massive buildout of data centers, which require a vast supply of high-performance chips. This directly benefits memory chip manufacturers like Samsung and SK Hynix, which produce essential components like High Bandwidth Memory (HBM). The intense demand has led some analysts to declare a 'semiconductor supercycle,' a prolonged period of above-average growth for the industry, as companies worldwide race to develop their AI capabilities.
Lam Research is up 74.4% since the beginning of the year, and at $322.69 per share, has set a new 52-week high. Investors who bought $1,000 worth of Lam Research’s shares 5 years ago would now be looking at an investment worth $5,058.
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