Lam Research Corp's Strong FCF Margins From AI-Related Chip Equipment Sales Shows LRCX Stock is Cheap

Core Insights - Lam Research Corp. (LRCX) achieved a strong 30% free cash flow (FCF) margin on semiconductor equipment sales in the latest quarter, indicating potential undervaluation of the stock by approximately 19% based on FCF margins and analysts' revenue estimates [1][3] - The stock is currently trading at $156.31 with a market capitalization of $197.2 billion, showing significant growth over the past three months [1] Financial Performance - Revenue increased by 3% compared to the previous quarter, driven by strong demand for AI-related chip equipment [3] - Gross and operating margins for the quarter were reported at 50.5% and 35.0% respectively, while operating cash flow (OCF) margin was $1.78 billion, reflecting a decrease from $2.55 billion last quarter but a 13.3% increase from $1.57 billion a year ago [4] - Over the past year, the company generated $5.55 billion in FCF, representing 28.3% of revenue, with expectations of maintaining at least 30% FCF margins going forward [5] Revenue Projections - Analysts forecast revenue of $21.26 billion for the year ending June 30, 2026, and $23.53 billion for the following fiscal year, leading to a next-12-month (NTM) revenue estimate of approximately $21.83 billion [6] - Applying a 33% FCF margin to the NTM revenue results in a forecast of $6.55 billion in NTM FCF [6]