We recently compiled a list of the 15 Best Hardware Stocks According to Hedge Funds. In this article, we are going to take a look at where Lam Research Corporation (NASDAQ:LRCX) stands against the other hardware stocks.
With the first half of 2024 nearly over, artificial intelligence continues to play a dominant role in the stock market. Stocks that either design semiconductors that are used for AI applications, or those that use them to either streamline their internal operations such as coding or offer products to customers have also made significant gains. These show the optimism in Wall Street for accelerated computing technologies, which are collectively called artificial intelligence.
In fact, the impact of AI has been so strong that not only has it upended the status quo of the most valuable firms in terms of market capitalization, but it also allowed some of the top AI companies to post triple digit percentage share price returns over the course of the past twelve months. Some of the top performing AI stocks are up by 213% over the past twelve months and have appreciated by 773% since November 2022. Back then, the stock market was whimpering in the aftermath of rapid interest rate hikes by the Federal Reserve, which had hit technology stocks particularly hard since they benefit from a fast growth and low rate environment.
However, AI’s impact on the stock market has fueled the triple digit percentage gains in some stocks since then. At the same time, it has also meant that major indexes continue to demonstrate robust performance that is fueled by the share price performance of mega cap technology stocks.
In 2024, the market has moved forward from investing in AI companies that can change the world with their hardware or software to evaluating whether these firms are delivering. The first quarter of the 2024 earnings season was the clearest example of this phenomenon, and it saw Wall Street take an unforgiving approach to large and small firms that presented even the slightest hint of being unable to either grow their revenues by targeting AI or control the costs of investing in the new technologies.
Within the AI industry, there are different categories of firms. Most of these, such as OpenAI, operate on the software side. This industry subsegment develops applications such as chat bots and other assistants along with expanding the use of AI to existing software such as image editing tools. AI hardware companies power these applications, and when compared to the software firms, not only do they command stable valuations, but they also see investors take comfort in the fact that the demand for their products is far more stable and predictable when compared to software demand. Recently Goldman Sachs published a bullish report on hardware stocks due to AI, which we covered in 15 Best Hardware Stocks According To Goldman. In this article we are going to approach the same theme from a different angle and there are vast differences between both rankings of hardware stocks.
Our Methodology
To make our list of the top hedge fund hardware stock picks, we ranked personal computing, semiconductor, and computer hardware by the number of hedge funds that had bought the shares in Q1 2024. Out of these, the stocks with the highest number of hedge fund investors were selected. Basically our article listed the best hardware stocks to buy according to the 900+ equity hedge funds tracked by Insider Monkey. Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician operating an automated semiconductor processing machine with laser accuracy.
Lam Research Corporation (NASDAQ:LRCX)
Number of Hedge Fund Shareholders In Q1 2024: 78
Lam Research Corporation (NASDAQ:LRCX) is a backend AI hardware stock as it makes and sells machines used in semiconductor fabrication. Like other AI stocks, it has held its ground on the financial front by having beaten adjusted analyst EPS estimates in all four of its latest quarters. Adding to the AI and chip boom, Raymond James increased Lam Research Corporation (NASDAQ:LRCX)’s share price target to $1,060 from $950 in June 2024, as it shared that AI demand, robust data center growth in H2 2024, and government subsidies like those promised by the CHIPS and Science Act should prove to be tailwinds to the stock.
As of March 2024, 78 hedge funds part of Insider Monkey’s database had bought a stake in Lam Research Corporation (NASDAQ:LRCX). Rajiv Jain’s GQG Partners owned the most valuable stake which was worth $2 billion.
Lam Research Corporation (NASDAQ:LRCX) is one of the more controversial AI stocks since it is caught in the middle of tensions between US and China. The US has sanctioned China from buying advanced chip equipment due to national security concerns, but despite this, Lam Research Corporation (NASDAQ:LRCX)’s first quarter earnings report saw the firm earn $3.76 billion in revenue from China. Baron Funds’ Q4 2023 investor letter was also quite optimistic for Lam Research Corporation (NASDAQ:LRCX) as it shared:
Lam Research Corporation is a leading global supplier of wafer fabrication equipment (WFE) and services to the semiconductor industry. Lam’s products tend to focus on etch and deposition process steps and its tools are critical in the production of NAND and DRAM memory chips as well as logic devices. While the share of overall WFE spending looks relatively fragmented across the top four to five players in the industry, each of these leading companies tends to have significant share within smaller slices of the industry, creating a stable and favorable industry structure, with share shifts tending to only happen at times of technology transition in the broader industry. We purchased shares of Lam in the quarter as we believe we are at one of those key transition points in the industry that will disproportionately benefit Lam, with a move to gate-all-around transistors in logic creating an increasing need for complex deposition and etch process stops and the emergence of high-bandwidth memory and advanced packaging requiring increasingly complex high-aspect-ratio (i.e., very deep) etches, where Lam has virtually 100% market share. We also believe the market is underestimating the pent-up earnings power in the company as NAND WFE spending recovers in the coming years from one of its worst downcycles ever in 2023.
Overall LRCX ranks 11th on our list of the best hardware stocks to buy. You can visit 15 Best Hardware Stocks According to Hedge Funds to see the other hardware stocks that are on hedge funds’ radar. While we acknowledge the potential of LRCX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LRCX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.