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Lam Research (LRCX +2%) takes a small step higher today after registering decent top and bottom-line upside in Q1 (Sep). The wafer fab equipment (WFE) supplier also projected Q2 (Dec) numbers consistent with analyst forecasts, a common occurrence for the company, having done so for six straight periods. The performance overall was sufficient in easing some fears prompted by ASML's (ASML) dismal Q3 report last week, projecting downbeat figures following a slower-than-expected recovery across all markets outside of AI. Still, unease likely remains, evidenced by LRCX trading around 12% below levels before ASML's Q3 report and over 30% below all-time highs reached in July.

• AI is likely not generating concerns. The technology remained a silver lining for ASML and a positive standout for LRCX, showcased by its advanced packaging business, which meets the need for high bandwidth memory (HBM), reaching $1.0 bln in sales in the quarter. Management mentioned that the unrelenting demand for AI has gone beyond what it initially expected. LRCX does not foresee advanced packaging slowing down anytime soon given conversations with customers.
• The accelerating momentum for AI was an underlying factor in LRCX's second straight double-digit revenue growth in the quarter, posting a 19.7% jump yr/yr to $4.17 bln, exceeding the midpoint of its $3.75-4.35 bln guidance. Margins also exceeded LRCX's expectations, pushing adjusted EPS 29% higher yr/yr to $0.86.
• Keeping shares somewhat in check today was LRCX's unchanged WFE spending forecast for 2024 at around the mid-$90 bln range. AI remains buoyant, countering domestic China WFE spending sliding in the back half of the year compared to the first half. China's share of LRCX's overall revs is also normalizing to the 30% range for Q2 (Dec). Given this context, LRCX projected a relatively wide guidance range for Q2, expecting adjusted EPS of $0.77-0.97 and revs of $4.0-4.6 bln.
• While LRCX noted that it is too early to outline its 2025 WFE spending guidance, it predicts growth yr/yr. NAND and DRAM are expected to recover, propped up by advanced packaging demand and ongoing technology conversions to more advanced nodes, among other factors. More importantly, LRCX is confident in outperforming overall WFE growth next year due to the company's critical role in chip manufacturing.

Supported by constant AI-related investments from customers, LRCX's Q1 report was decent. The timing surrounding a recovery remains uncertain, however, keeping overall sentiment somewhat cautious. ASML's alarming guidance last week is proving challenging to shrug off as the market may need further signs of recovery from LRCX's peers before fears begin to subside. However, it could take until next quarter, when LRCX should issue its 2025 WFE spending outlook before investor confidence is fully restored.