Will LRCX's China Revenue Drop Below 30% Hurt 2026 Growth Outlook?

Core Insights - Lam Research Corporation (LRCX) anticipates a decline in China's contribution to total revenues, projecting it to fall below 30% by 2026 due to new export restrictions impacting shipments to specific domestic customers [1][11] Revenue Performance - In Q1 fiscal 2026, revenues from China increased by 46.5% year over year to $2.28 billion, representing approximately 43% of total revenues, compared to 37.4% in fiscal 2025 [2][11] - The company estimates that the current shipment restrictions could negatively affect sales in China by $200 million in Q2 and $600 million in 2026 [3][11] Market Dynamics - The anticipated decline in revenue from China is expected to create short-term challenges, particularly for systems sales, as domestic customers have been significant buyers of equipment [3][11] - Lam Research is focusing on offsetting this impact through increased demand from global customers outside China, particularly driven by AI-related investments in regions like Taiwan, Korea, and the U.S. [4][11] Future Projections - Analysts project revenue growth for fiscal 2026 and 2027, with the Zacks Consensus Estimate indicating increases of 14.1% and 12.5% year over year, respectively [5] - Earnings estimates for fiscal 2026 and 2027 suggest a year-over-year increase of approximately 15.9% and 15.2%, with recent estimates for fiscal 2026 remaining unchanged [16] Competitive Landscape - Competitors such as Applied Materials and KLA Corporation are facing similar challenges due to tightened export restrictions on advanced semiconductor technologies to China [6] - Applied Materials reported a 16% year-over-year decline in revenues from China in fiscal 2025, with an expected revenue loss of $600 million in fiscal 2026 due to ongoing restrictions [7] - KLA Corporation's revenues from China were $1.27 billion in Q1 fiscal 2026, accounting for 39.5% of total sales, with an estimated impact of $300-$350 million from current export restrictions [8] Valuation Metrics - Lam Research's shares have increased by 181.6% over the past year, outperforming the Zacks Electronics – Semiconductors industry's gain of 43% [9] - The company trades at a forward price-to-earnings ratio of 41.28, which is higher than the industry's average of 34.61 [13]