Lam Research Is Overvalued Amid Geopolitical Risks

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Lam Research (NASDAQ:LRCX) is a U.S. semiconductor equipment provider that plays a critical role in advancing semiconductor technology, supplying major fabrication plants worldwide. However, due to current Sino-American geopolitical tensions and the stocks apparent overvaluation, there appears to be little reason to invest in the company at this time, given the high risks of medium-term volatility.

Operational profile and macroeconomic analysis

Lam Research provides wafer fabrication equipment and services to the semiconductor industry. Its products are essential for manufacturing integrated circuits, which are used in almost all modern electronic devices. The company specializes in front-end wafer processing, which is essential for creating transistors, capacitors, and their wiring. Lam also offers back-end wafer-level packaging, microelectromechanical systems, and other solutions.

As demand for advanced semiconductors grows across industries like AI, 5G, and autonomous vehicles, Lams equipment is set to play an essential role. Management has strategically invested in emerging technologies, including backside power delivery and 3D DRAM, positioning the company well to capitalize on future trends in semiconductor design. Key customers include Taiwan Semiconductor Manufacturing Company (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung (SSNGY), with Applied Materials (NASDAQ:AMAT) and Tokyo Electron as key direct competitors.

Applied Materials has a more advanced vertical integration strategy than Lam Research, enabling it to offer more comprehensive solutions. Both companies serve the same major fabs. In contrast, Tokyo Electron has a particularly strong presence in Asia and maintains a close partnership with ASML. As Tokyo Electron is not U.S.-based, it currently faces no policy constraints on serving the Chinese market, allowing it to continue operations in China without interruption.

Notably, U.S. restrictions on selling advanced semiconductor equipment to China have limited Lams access to a key market, as China is a major buyer of these products. The restrictions come at a time of heightened tensions around Taiwan. U.S. military officials, such as Admiral John Aquilino, former head of the U.S. Indo-Pacific Command, have testified that China aims to develop the capability to invade Taiwan by 2027, adding a certain level of risk to semiconductor investments at this time.

However, I believe a Trump administration could help mitigate the risk of China taking such actions. Xi Jinping has congratulated Trump on his election victory, emphasizing the importance of stable, healthy, and sustainable ties between China and the United States. In a message to Trump, Xi highlighted that cooperation would benefit both sides, while confrontation would be detrimental. In light of this, I feel we are positioned to navigate strong Sino-American relations for global peace and order. As a macro investor, I remain bullish on the investment theses for TSMC, Lam Research, and ASML (NASDAQ:ASML) at this time.

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