Lam Research announces $10B buyback, 10-for-1 split: Time to invest?

On Tuesday, Lam Research Corporation (NASDAQ:LRCX) announced a significant $10 billion share repurchase authorization and a 10-for-1 stock split. This strategic move aligns with the company’s commitment to returning 75% to 100% of free cash flow to shareholders through dividends and buybacks. The stock split, designed to enhance liquidity and broaden investor participation, will see LRCX trading on a split-adjusted basis starting October 3, 2024.

Lam Research is a critical player in the semiconductor industry, providing essential wafer fabrication equipment. The company's recent performance has been strong, with a notable increase in revenue and earnings. For the third quarter of FY2024, Lam reported revenue of $3.79 billion, beating consensus estimates of $3.72 billion, and a Non-GAAP EPS of $7.79, surpassing expectations by $0.49.

Fundamentally, Lam Research is well-positioned with a diversified revenue stream across memory, foundry, and logic segments, which accounted for 44%, 44%, and 12% of total sales, respectively. The company's strong financial health is further supported by its strategic focus on high-growth areas like High Bandwidth Memory (HBM) and advancements in 3D stacking technologies. With a forward P/E ratio of 29.74, lower than the peer group average of 33.5, Lam Research offers a favorable valuation, providing an attractive entry point for investors.

With the semiconductor industry poised for significant growth, driven by AI advancements and increasing memory demands, Lam Research stands to benefit immensely. The wafer fabrication equipment market is projected to grow, supported by a recovery in memory spending and new foundry projects.

Lam's strategic initiatives, including the stock split and share repurchase, are likely to further enhance shareholder value. As we delve into the technical analysis, we'll explore the stock's potential trajectory, examining key indicators and chart patterns to determine if now is the right time to invest in Lam Research.

Charting the path: From 2019 to the present

Since 2019, Lam Research's stock has steadily climbed upward, defying market challenges, including the turbulence of the COVID-19 pandemic in 2020, which triggered a widespread bear market causing many stocks to plummet heavily. This upward trend has intensified significantly since the start of 2023, with the stock's value tripling from $300 to over $900.

LRCX chart by TradingView

Despite the recent dip from above $1,000 to $850 levels in April, the stock has swiftly rebounded, currently trading above $950, underscoring the prevailing bullish sentiment. For investors eyeing entry points, purchasing at the current level could be opportune, with a stop loss below the recent swing low at $855. Breaking past the near-term resistance at $1,005 could propel the stock towards $1,076 and $1,158, where profits can be booked.

Traders with a bearish outlook on the stock might explore shorting opportunities if the stock surpasses $965, with a tight stop loss at $1,008, allowing for a low-risk-high-reward trade. In the event of a downturn, potential support levels could be around $850. However, it's important to note that if this support level fails to hold, the stock could potentially decline further, with the downside target extending to $716.