LAM Research (LRCX) Q2 2026: Foundry Revenue Soars 69% as AI Demand Shifts Share
LAM Research delivered record quarterly results, driven by surging foundry and DRAM demand tied to AI infrastructure buildouts. The company’s rapid product innovation and operational scaling are enabling share gains at leading-edge nodes, while expanding advanced packaging and services position LAM for multi-year outperformance. Clean room constraints remain a bottleneck, but management signals continued upside as new fabs come online and technology transitions accelerate.
Summary
- AI-Driven Node Migration: Technology transitions to gate-all-around and HBM are intensifying LAM’s share gains in foundry and memory.
- Operational Velocity: Manufacturing capacity and supply chain agility are supporting double-digit revenue growth and record margins.
- Second-Half Weighting: Clean room space constraints will limit upside in early 2026, but visibility and demand remain robust into 2027.
Performance Analysis
LAM Research posted record quarterly and full-year results, with December quarter revenue ahead of guidance and all margin lines exceeding the high end of expectations. Foundry systems revenue surged to 59% of mix, up sharply from 35% a year ago, reflecting outsize demand for advanced logic and packaging. DRAM revenue also reached a record, now 23% of systems revenue, as customers ramped high-bandwidth memory (HBM) and migrated to DDR5 nodes. NAND trailed sequentially, but management confirmed a strong growth setup for 2026 as AI and data center use cases expand.
Gross margin approached 50%, with operating margin above 34%. Customer Support Business Group (CSBG), LAM’s services and spares arm, delivered $2 billion in revenue for the quarter, up 12% sequentially, supported by growth in Reliant systems and advanced services. China’s revenue mix moderated to 35%, down from 43% last quarter, while Taiwan and Korea both climbed, signaling broad-based geographic strength outside China. Share buybacks and dividends returned 85% of free cash flow to shareholders, underlining capital return discipline.
- Foundry Leadership Surge: Foundry and logic drove the largest share gain, propelled by AI-related node transitions and packaging complexity.
- Margin Expansion: Top-to-bottom leverage yielded record profitability, even as customer mix shifted and China moderated.
- CSBG Flywheel: Installed base exceeded 100,000 chambers, fueling recurring service revenue and margin expansion.
With a robust balance sheet, LAM is well positioned to fund both operational scaling and capital return, even as inventory and CapEx rise to support accelerating demand.
Executive Commentary
"With the industry ramping capacity and adopting new technologies to meet the demands of the AI transformation, LAM's deposition and edge capabilities are proving to be key enablers in the transition to gate-all-around transistors, backside power deposition, high-performance materials, and 3D advanced packaging."
Tim Archer, President and CEO
"In calendar year 2025, revenue was a record coming in at $20.6 billion, which is up 27% year-over-year... We delivered leverage from the top to the bottom of the PML in 2025."
Doug Bettinger, EVP and CFO
Strategic Positioning
1. Technology Node Acceleration
AI workloads are catalyzing rapid migration to advanced nodes such as gate-all-around (GAA) transistors and high aspect ratio DRAM, creating incremental equipment demand and expanding LAM’s served available market (SAM, total market LAM’s products address). The company’s ACARA etch platform, with wins in EUV and high aspect ratio applications, is scaling fast—doubling its installed base in a year and set to multiply applications at future nodes.
2. Advanced Packaging Expansion
Advanced packaging, including HBM4 and 3D stacking, is now critical for AI and mobile devices. LAM expects its advanced packaging business to grow over 40% in 2026, outpacing overall wafer fab equipment (WFE, capital spending on chipmaking tools) growth. Leadership in electroplating and TSV etch positions LAM to capture this shift as more devices adopt complex packaging schemes.
3. Installed Base Monetization
Customer Support Business Group (CSBG) continues to outpace installed base growth, leveraging predictive maintenance and automation (e.g., Dextro cobots, collaborative robots for tool maintenance) to drive higher-margin, recurring revenue. The installed base surpassed 100,000 chambers, and recurring upgrades and spares are a growing profit engine, with record upgrade revenue up 90% year-over-year.
4. Operational Scale and Supply Chain Resilience
Manufacturing capacity has nearly doubled in four years, and investments in automated warehouses and global supply chain depth are enabling LAM to respond to customer pull-ins and minimize bottlenecks. While clean room space at customer fabs remains the industry’s gating constraint, LAM’s operational improvements have ensured it is not a limiting factor in customer ramps.
5. Geographic and Customer Mix Evolution
China’s share of revenue is set to decline as growth accelerates in Taiwan, Korea, and the US. This shift reduces regulatory risk and aligns LAM with the most advanced technology ramps. Management expects China WFE to be flat year-over-year, with the rest of the world driving overall growth and further diversifying the revenue base.
Key Considerations
This quarter’s results underscore LAM’s ability to capitalize on technology transitions and operationalize growth at scale. The company’s exposure to AI-driven node migration and packaging complexity is translating into tangible share gains and higher margin recurring revenue.
Key Considerations:
- AI Infrastructure Tailwind: Accelerating demand for compute and storage is driving above-market growth in foundry, DRAM, and advanced packaging.
- Product Innovation Cycle: ACARA and MOLLE platforms are winning tool-of-record status, supporting share gains at advanced nodes.
- Service Monetization: CSBG’s transformation to predictive, automated services is boosting both revenue and profitability.
- Clean Room Constraints: Industry-wide fab space shortages are the main cap on near-term upside, but set up multi-year demand visibility.
- Capital Allocation Discipline: 85% of free cash flow returned to shareholders, with share buybacks and dividends reinforcing capital return strategy.
Risks
Clean room space constraints remain the primary bottleneck, limiting near-term upside and pushing some customer capacity additions into 2027 and beyond. China revenue exposure, while moderating, still presents regulatory and geopolitical risk. Rapid technology transitions could create execution risk if supply chain or R&D velocity falters. Finally, customer mix shifts may pressure margins if less favorable segments outpace leading-edge growth.
Forward Outlook
For Q3 2026, LAM guided to:
- Revenue of $5.7 billion, plus or minus $300 million
- Gross margin of 49%, plus or minus one percentage point
- Operating margin of 34%, plus or minus one percentage point
- EPS of $1.35, plus or minus 10 cents
For full-year 2026, management expects:
- WFE spending to reach $135 billion, weighted to the second half
- Meaningful year-over-year growth, with LAM outperforming WFE as share gains and SAM expansion accelerate
Management emphasized that clean room constraints will keep the market undersupplied in 2026, but multi-year fab announcements and customer pull-ins signal robust demand visibility well into 2027.
- Quarterly growth expected throughout 2026
- Strong backlog and customer pull-ins driving operational urgency
Takeaways
LAM’s execution, innovation, and operational scale are unlocking outperformance in a structurally accelerating AI-driven market.
- AI Buildout Drives Share Gain: LAM is capturing incremental share at every node transition as customers migrate to GAA and advanced packaging for AI workloads.
- Recurring Revenue Flywheel: CSBG’s installed base and advanced services are compounding high-margin, recurring revenue streams.
- Watch for Clean Room Relief: As new fabs come online and technology transitions mature, LAM’s growth runway could extend well into the decade.
Conclusion
LAM Research is delivering on its multi-year growth vision, with AI-driven demand and technology transitions fueling record results and market share gains. Operational scaling and product innovation position the company to outperform as industry constraints ease and new capacity comes online.
Industry Read-Through
LAM’s results confirm that AI infrastructure buildout is driving a new wave of technology migration and capital intensity across the semiconductor supply chain. Equipment suppliers with exposure to advanced logic, DRAM, and packaging are best positioned for outperformance, while those dependent on trailing-edge or China-centric demand face relative headwinds. Clean room and fab construction constraints are the industry’s gating factor, setting up a multi-year investment cycle as new capacity ramps in the US, Korea, and Taiwan. Service and installed base monetization are emerging as critical profit drivers across the equipment sector, with automation and predictive maintenance differentiating winners.