Is This Chip Stock Too Exposed to China?
This semiconductors stock is riding AI chip demand to record growth, but heavy China reliance poses ongoing geopolitical risks.
Key Takeaways
Lam Research’s revenue surged 33.6% year-over-year in Q4 2025, fueled by strong demand for AI chipmaking equipment.
Despite record earnings and a 118% six-month share price rally, Lam faces risks from its exposure to China amid ongoing trade tensions.
Analysts remain bullish, citing Lam’s strong positioning in the wafer fabrication market and growing AI-driven demand for deposition and etch technologies.
Lam Research [LRCX] is a California-based supplier of wafer fabrication equipment (WFE) to the semiconductor industry.
The WFE market is forecast to grow to a valuation of $184bn by 2030 — $151bn in equipment shipments and $33bn in services, with CAGRs of 4.6% and 4.8%, respectively, as shown in the graph below, based on data from Yole Group.[1] Lam is one of five companies that controlled 70% of the market last year. The others were ASML [ASML], Applied Materials [AMAT], KLA [KLAC] and Tokyo Electron [TOELY].
This piece will look at how LRCX stock has been performing in the runup to its Q2 2026 earnings, which will be reported after the bell on Wednesday. It will assess what might impact the share price in the near term.
Equipment for AI Chips Fuels Strong Q4 2025
Lam’s revenue for its fiscal Q4 2025 climbed 33.58% year-over-year to $5.17bn, the highest quarterly growth rate since its fiscal Q1 2022.[2] Systems revenue was $3.44bn, up approximately 58% year-over-year, while its customer support business group revenue nudged up 1.9% to $1.73bn.[3]
“Lam delivered another solid quarter, highlighted by strong gross margins and record EPS,” said Lam CEO and President Tim Archer in a press release.
While the company beat top- and bottom-line estimates,[4] the stock dropped following the earnings report on July 30, hitting a daily low of $90.94 on July 31. However, if you zoom out for a longer-term view, this becomes a mere blip. The Lam share price closed on October 17 at $141.51, up 118.21% in the past six months and gaining 17.70% in the past month.
Continued Growth Expected in Q1 2026
Lam expects revenue for Q1 2026 to be $5.2bn, give or take approximately $300m, up from $4.17bn in the year-ago quarter.[5] Earnings are expected to be in the $1.10–1.30 range, versus $0.86.
These numbers are in line with the analysts’ consensus of $1.22 per share on revenue of $5.23bn, as per Yahoo Finance.
Nevertheless, the company stressed in its full-year report for fiscal 2025 that it is “too early to comment on 2026” in any detail. The company is cautious, but expects continued growth throughout the current fiscal year as demand for deposition and etch technologies for chipmaking rises.[6]
In comparison, Applied Materials cautioned in August that its fiscal Q4 2025 results, due to be reported next month, will be “sequentially lower, primarily due to uncertainties in China”.[7] It expects to deliver a sixth consecutive year of growth for the full year.
ASML has also warned of softening demand in China despite the global artificial intelligence (AI) gold rush. Sales to Chinese customers are likely to be “significantly” lower this year compared to 2024 and 2025.[8] The country accounted for 42% of ASML’s system sales in Q3 2025, up from 27% in the previous quarter.[9]
Here are how the current fundamentals of the three chipmaking equipment stocks compare.
All three stocks could be considered overvalued based on their current forward P/S ratios and projected drop-off in revenue growth. The picture could become clearer once Lam and Applied Materials report their next quarterly results.
LRCX Stock: The Investment Case
The Bear Case for LRCX Stock
The problem for Lam is its high revenue exposure to China, which means the chipmaker is more likely to be caught in the crossfire of US President Donald Trump’s trade war with Beijing.
China accounted for 35% of revenue in fiscal Q4 2025,[10] an uptick from 31% in Q3 2025.[11] The US had a 6% share in the most recently reported quarter.
Lam was named by the US House Select Committee on China earlier this month as one of several companies that “made sizable returns selling equipment to Chinese state-owned and military-linked companies”.[12]
The Bull Case for LRCX Stock
Demand for memory chips is red-hot and Lam should be a major beneficiary of the AI build out. According to research from the chip industry association SEMI, WFE is the fastest growing segment in the whole of the semiconductor market.[13]
Deutsche Bank analysts led by Melissa Weathers recently upgraded LRCX from ‘hold’ to ‘buy’, while hiking their price target from $100 to $150 at the end of September, implying an upside of 6.0% from the most recent closing price of $141.51.
“We believe LRCX is well positioned to outperform peers over the next 12 months given these cyclical and secular tailwinds,” wrote Weathers.[14]
Conclusion
Lam Research’s share price has surged in 2025 as the equipment maker benefits from a surge in orders for AI chips. While the company expects strong growth in the current fiscal year, its China business and revenue exposure is something investors should keep an eye on.
This is for informational purposes only. OPTO Markets does not recommend any specific securities or investment strategies. Investing involves risk and investments may lose value, including the loss of principal. Past performance does not guarantee future results.
[1] https://www.yolegroup.com/press-release/wafer-fab-equipment-wfe-market-to-hit-184-billion-by-2030-for-equipment-and-services-driven-by-specialized-segment-growth-and-global-manufacturing-shifts/
[2] https://stockanalysis.com/stocks/lrcx/revenue/
[3] https://filecache.investorroom.com/mr5ir_lamresearch2/1454/LRCX_Exhibit_99.1_Q4_2025.pdf
[4] https://www.nasdaq.com/articles/lam-researchs-q4-earnings-beat-expectations-revenues-rise-y-y
[5] https://filecache.investorroom.com/mr5ir_lamresearch2/1423/LRCX_Exhibit_99.1_Q1_2025.pdf
[6] https://www.investing.com/news/transcripts/earnings-call-transcript-lam-research-q4-2025-beats-expectations-stock-rises-93CH-4161532
[7] https://ir.appliedmaterials.com/static-files/efa527ca-33cb-466d-a001-3e01a3013f19
[8] https://ourbrand.asml.com/m/6426a12faab0f2a0/original/ASML-Press-Release-Quarterly-Results-Q3-2025.pdf
[9] https://ourbrand.asml.com/m/4beae8fbfeefabee/original/2025_10_15_Presentation-Investor-Relations-Q3-2025.pdf
[10] https://filecache.investorroom.com/mr5ir_lamresearch2/1454/LRCX_Exhibit_99.1_Q4_2025.pdf
[11] https://filecache.investorroom.com/mr5ir_lamresearch2/1439/LRCX_Exhibit_99.1_Q3_2025.pdf
[12] https://selectcommitteeontheccp.house.gov/media/press-releases/new-investigation-reveals-american-and-allied-companies-boosted-the-ccp-s-semiconductor-industry-fueled-the-prc-s-military-ambitions-and-human-rights-abuses
[13] https://www.semi.org/en/semi-press-release/semi-reports-global-total-semiconductor-equipment-sales-forecast-to-reach-125.5-billion-dollars-in-2025
[14] https://www.barrons.com/articles/lam-research-stock-upgrade-6441cd5d
Interesting analysis on Lam's China exposure. This makes me think about Western Digital's position in the storage sector, which faces similar geopolitical headwinds. WDC has been quietly positioning itself in the HBM and high-capacity enterprise storage space, which are critical for AI data centers that need massive storage solutions alongside the computing power from chips made with Lam's equipent. The company's recent restructuring and focus on higher-margin enterprise products could help offset some China-related risks, though they're not immune. It's worth watching how storage companies like WDC navigate the same trade tensions that equipment makers face - after all, you can't run AI workloads without somewhere to store all that data.