Why Lam Research Stock Crumbled by 3% Today

Key Points

• An analyst downgraded his recommendation on the semiconductor manufacturing equipment specialist's equity.

• He now feels investors shouldn't own it at the current price.

• 10 stocks we like better than Lam Research ›

Some recent research on semiconductor manufacturing company Lam Research's (NASDAQ: LRCX) stock was discouraging for the market on Tuesday. The holiday-shortened week began with a 3% decline in the company's share price that session, a notably more pronounced slide than the S&P 500 index's 0.7% dip.

An analyst goes bearish

On Labor Day, analyst Shane Brett of white-shoe investment bank Morgan Stanley (NYSE: MS) downgraded his recommendation on Lam Research's shares. In his opinion, the chip stock now rates only an underweight (sell, in other words), down from the former equalweight (hold). With that change, Brett cut his price target slightly to $92 per share from the preceding $94.

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Lam Research became something of an investor favorite, beginning last year, on better-than-expected operational and financial performance. However, according to reports, Brett now feels that the company will be able to post such high levels of growth into 2026.

In his update on the stock, the analyst pointed to two sources of pressure on Lam Research's business. He feels that its market share in China will be challenging to grow from here. He also expressed concern about its NAND memory business, writing that despite high growth in the past, the company's end markets don't have enough potential to greatly improve the company's fundamentals.

Reason to be cheerful?

Not all of Brett's new Lam Research take was negative. He stressed that he did not feel much was fundamentally unsound about the company's management or business; rather, his concern is with its customer base and the fading prospects of that once-critical NAND segment.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research. The Motley Fool has a disclosure policy.