Can Advanced Packaging Boost Systems Sales at Lam Research in FY26?

Lam Research (LRCX) anticipates significant growth in its Systems segment, primarily driven by soaring demand for advanced packaging solutions fueled by AI and high-performance computing. The company projects advanced packaging revenues, which surpassed $1 billion in 2024, to more than triple to over $3 billion in 2025, contributing to an estimated 9.3% year-over-year increase in Systems revenues to $12.57 billion in fiscal 2026. This strong outlook, underpinned by increasing chip complexity and HBM adoption, has seen LRCX shares rise 45.4% year-to-date, outperforming the industry, and the company trades at a valuation discount relative to peers, despite competition from Applied Materials and KLA.

Analysis

Lam Research (LRCX) is demonstrating strong growth momentum, primarily fueled by the burgeoning advanced packaging market which is critical for AI and high-performance computing applications. The company's Systems segment revenue surged 28.8% year-over-year to $11.49 billion in fiscal 2025, and this trajectory is expected to continue. A key catalyst is the projected tripling of its advanced packaging-related revenues, from over $1 billion in 2024 to an anticipated $3 billion in 2025. This growth is underpinned by the increasing technical complexity in chip manufacturing, such as the transition to 3D system-on-integrated-chip architectures and higher-stack High-Bandwidth Memory (HBM), which directly increases demand for Lam's core etch and deposition process tools. Despite strong stock performance, with a 45.4% year-to-date gain outperforming the industry's 26.9%, LRCX trades at a notable valuation discount with a forward P/E of 23.38 versus the industry average of 35.98. This favorable outlook is further supported by upward revisions to earnings estimates for fiscal 2026 and 2027, with consensus projecting a 9.3% increase in Systems revenue to $12.57 billion in fiscal 2026.

Key Decisions for Investors

• Given the strong secular growth in advanced packaging, upward earnings revisions, and a valuation discount relative to its industry, investors may find LRCX an attractive long-term holding.
• Monitor the company's ability to meet its aggressive target of tripling advanced packaging revenue to over $3 billion in 2025, as this is a cornerstone of the current investment thesis.
• Keep a close watch on the competitive landscape, particularly technological advancements from rivals Applied Materials (AMAT) and KLA Corporation (KLAC), which could affect market share in the high-growth HBM and 3D integration segments.