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Lam Research (LRCX +7%) enjoys a positive response to its upbeat Q2 (Dec) report today, following in the footsteps of peer ASML (ASML), which delivered encouraging DecQ numbers yesterday. The semiconductor equipment supplier toppled earnings and revenue estimates in the quarter, laying the groundwork for upside Q3 guidance, the first time in two years that LRCX has issued bullish quarterly numbers.

• In Q2, LRCX registered double-digit adjusted earnings growth to $0.91 and 16.4% revenue expansion to $4.38 bln. Non-GAAP gross margins of 47.5% exceeded the midpoint of LRCX's prior forecast but did represent a minor 70 bp contraction from Q1 (Sep), reflecting unfavorable customer mix, which LRCX warned of in October. Total wafer fab equipment (WFE) spending finished in-line with LRCX's mid-$90 bln range for the year.
• AI fueled LRCX's solid performance in the quarter, helping overcome muted NAND (flash memory) spending. The company's gate-all-around and advanced packaging technologies, which are critical enablers for AI device manufacturing, saw shipments grow to over $1.0 bln in 2024, maintaining momentum from last quarter when these products reached $1.0 bln for the first time.
• AI is not going anywhere either in 2025, helping push LRCX's WFE spending outlook modestly higher to approximately $100 bln. LRCX predicts technology inflections will lead to faster growth for the company as AI applications require greater device and package-level performance. As such, LRCX forecasts shipments to gate-all-around nodes and advanced packaging to total well over $3.0 bln in 2025, a potential 200% surge yr/yr. These bullish forecasts were showcased in LRCX's promising Q3 guidance, projecting adjusted EPS of $0.90-1.10 and revs of $4.35-4.95 bln.
• Regarding China, the region's concentration for 2025 will be down moderately compared to 2024, consistent with LRCX's remarks from last quarter. In Q4, the region accounted for around 31% of total revs, down 7 pts from Q1. The new export curbs in early December harmed LRCX to a degree, restricting selling to a handful of Chinese customers. Management estimated the impact was roughly $700 mln, which would have been second-half-weighted in 2025.

Like ASML, LRCX's DecQ was encouraging, showcasing how robust AI demand has not budged. While export restrictions are hindering growth in China, healthy demand across other parts of the globe is helping offset normalizing revenue in the region. Still, risks are on the horizon, keeping LRCX trading nearly 30% below all-time highs from July. Geopolitics can create additional and more pronounced setbacks. Meanwhile, markets outside AI, such as smartphones and PCs, are shaky, which can produce outsized volatility, such as what transpired in October following ASML's gloomy guidance.

On a final note, solid reports from ASML and LRCX set a bullish tone ahead of peers' upcoming reports, including KLA Corp (KLAC) today after the close, NXP Semi (NXPI) on February 3, and Applied Materials (AMAT) on February 13.