Morgan Stanley downgrades Lam Research, sees a challenging setup in 2026

Morgan Stanley downgraded Lam Research (LRCX) to an underweight rating from equal weight, reducing its price target to $92 from $94, citing an anticipated sharp deceleration in growth for 2026. Analyst Shane Brett forecasts growth to slow from 82% in 2025 to just 3% in 2026, primarily due to expected challenges in the China market and the NAND wafer fab equipment sector, leading to projected underperformance compared to peers. Following the downgrade, shares of Lam Research fell 4% in premarket trading.

Analysis

Morgan Stanley has issued a bearish call on Lam Research (LRCX), downgrading the stock to underweight from equal weight and cutting its price target to $92, which implies an 8% downside from the prior close. The core of the thesis is not a current fundamental issue but a projected, severe growth deceleration in 2026. The analyst, Shane Brett, forecasts growth to plummet from an expected 82% in 2025 to just 3% in 2026. This outlook is driven by two primary factors: the belief that Lam's significant outperformance in the China marketplace has peaked, making further market share gains "tough," and that the NAND wafer fab equipment (WFE) market lacks the robustness to fuel continued expansion. Despite Lam's strong historical performance, including a 29% stock surge this year, the market has reacted to the downgrade with a 4% premarket decline, indicating that investors are pricing in the risk of future relative underperformance against the broader WFE market and other U.S. large-cap peers.

Key Decisions for Investors

• Given the stock's significant 29% year-to-date gain, investors may consider trimming positions to crystallize profits ahead of the projected 2026 growth deceleration.
• The forecast of growth slowing from 82% to 3% introduces a significant risk of valuation multiple compression, warranting a reassessment of long positions and caution for new investors.
• Closely monitor Lam Research's future earnings calls and industry data for any confirmation of weakening market share in China or a slowdown in the NAND WFE sector, as these are the pivotal points of the bearish thesis.