What Happened?
Shares of semiconductor equipment maker Lam Research (NASDAQ: LRCX) jumped 3.9% in the morning session after a major AI-focused partnership in the chip sector boosted sentiment for semiconductor equipment manufacturers.
The positive momentum was linked to an announcement that AMD and OpenAI entered into an agreement to power OpenAI's AI infrastructure with AMD's Instinct GPUs. This significant deal underscored the massive demand for advanced chips needed for artificial intelligence applications. The development occurred as the U.S. semiconductor manufacturing industry was already experiencing rapid growth, fueled by AI-driven demand and government support from initiatives like the CHIPS and Science Act. As a key supplier of the equipment used to produce semiconductors, Lam Research stood to benefit from the overall expansion and investment in the sector.
After the initial pop the shares cooled down to $151.18, up 3.7% from previous close.
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What Is The Market Telling Us
Lam Research’s shares are very volatile and have had 20 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 12 days ago when the stock dropped 2.5% on the news that the stock's negative momentum continued as KeyBanc Capital Markets downgraded the stock to 'Sector Weight' from 'Overweight', citing valuation concerns after a significant run-up.
The downgrade followed a period where Lam Research's shares had risen sharply and exceeded the firm's price target. Analysts at KeyBanc noted that the stock's impressive gains were driven more by its valuation increasing rather than by actual growth in its earnings. This raised concerns about whether the current stock price was sustainable. The firm also expressed that it might take time for strong memory pricing to drive demand for new tools, suggesting near-term profits may not support the stock's recent rally.
Lam Research is up 109% since the beginning of the year, and at $151.18 per share, has set a new 52-week high. Investors who bought $1,000 worth of Lam Research’s shares 5 years ago would now be looking at an investment worth $4,434.
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