KeyBanc Capital downgraded Lam Research’s (NASDAQ:LRCX) rating to Sector Weight, while separately raising the price target on the shares of Applied Materials (NASDAQ:AMAT).
Shares of Lam fell about 2% on Tuesday, while Applied Materials’ stock was largely flat but in the green.
Analysts led by Steve Barger set overall, they have maintained their positive forward multi-year outlook for the industry driven by robust and fast-moving AI-driven spending, industry technology transitions, and secular growth of electronics worldwide.
“That said, given current valuation dynamics we are downgrading LRCX to SW. For investors that want to remain exposed to positive sentiment toward the group, we think AMAT has a more favorable risk/reward set up, as such we are increasing our PT to $220,” said the analysts.
Lam Research (NASDAQ:LRCX)
KeyBanc downgraded Lam’s rating to Sector Weight from Overweight.
The analysts noted that Lam’s shares have exceeded their price target within the past week and significantly outperformed peers year-to date, in particular pulling ahead in the last month.
They believe this performance has been driven by increasing investors optimism toward Memory end markets, a more favorable view on Lam’s competitive positioning ahead of several market inflections, as well as general optimism derived from AI-related announcements (such as Oracle, Nvidia-Intel, Samsung).
“That said, we don’t think that a corresponding increase in consensus expectations or actual earnings power is imminent, a setup the companies themselves acknowledged in the C2Q earnings season. Given the increase has been driven more by multiple expansion than incremental earnings growth, we see share price sustainability as at risk,” said Barger and his team.
Applied Materials (NASDAQ:AMAT)
KeyBanc increased the price target on Applied Materials’ stock to $220 from $200, while keeping its Overweight rating.
Barger and his team said Applied Materials’ shares have notably lagged peers year-to-date. They think that has been due to a combination of concern over mature node demand headwinds, particularly in China, which comprises the largest share of the company’s equipment sales. In addition, the company noted “lumpiness in leading-edge demand is driving elevated uncertainty and lower C2H visibility,” which investors saw as an unwelcome surprise during earnings season, and which contributed to its currently discounted valuation.
“We think AMAT faces similar leading edge catalysts as the rest of the group, but sentiment is relatively muted by more challenged trailing-edge exposure in China. We think the latter issue is generally well known and is part of the reason for AMAT’s more reasonable valuation,” said the analysts.
On Monday, Morgan Stanley upgraded the ratings of Applied Materials (AMAT) to Overweight and that of Lam Research (LRCX) to Equal-weight.