Lam Research CorporationLRCXNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $130.31 per share(market-calibrated)

-41.6%

Upside to Fair Value

Current

$222.99

Pure Model

$99.41

Fair Value

$130.31

Bull Case

$132.84

Bear Case

$70.99

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor LRCX

✓

CapEx already efficient

CapEx at 2.77% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 31.15% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 21.46% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $68.73/share (12.0x terminal FCF) while exit multiple gives $130.09/share (35.1x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $222.99. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 79.77% indicates efficient cash generation. FCF reaches $11.0B by Year 10 (26.34% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.79

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.54%

Cost of Debt

Pre-tax Cost of Debt3.97%

Tax Rate10.07%

After-tax Cost of Debt3.57%

Equity Weight (E/V)98.37%

Debt Weight (D/V)1.63%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (98.37% × 12.54%) + (1.63% × 3.57%)

= 12.40%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$22.4B	$31.0B	$34.7B	$37.4B	$41.7B
EBIT	$7.0B	$9.6B	$10.8B	$11.6B	$13.0B
Tax	$702M	$971M	$1.1B	$1.2B	$1.3B
NOPAT	$6.3B	$8.7B	$9.7B	$10.5B	$11.7B
+ Depreciation	$420M	$581M	$651M	$701M	$783M
- Capex	$620M	$857M	$961M	$1.0B	$1.2B
- Δ NWC	$850M	$656M	$269M	$290M	$324M
Free Cash Flow	$5.2B	$7.7B	$9.1B	$9.8B	$11.0B
Discount Factor	0.890	0.704	0.558	0.441	0.311
Present Value	$4.6B	$5.5B	$5.1B	$4.3B	$3.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$11.0B

Terminal Growth Rate3.75%

WACC12.40%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$131.9B

PV of Terminal Value$41.0B

Exit Multiple Method

Year 10 EBITDA$13.8B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$385.8B

PV of Terminal Value$119.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$45.8B

PV of Terminal Value$41.0B

Enterprise Value$86.8B

(-) Net Debt-$1.6B

Equity Value$88.4B

Shares Outstanding1.3B

Price per Share$68.73

Exit Multiple Method

PV of Projected FCFs$45.8B

PV of Terminal Value$119.9B

Enterprise Value$165.7B

(-) Net Debt-$1.6B

Equity Value$167.3B

Shares Outstanding1.3B

Price per Share$130.09

Pure Model Fair Value

$99.41

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
10.40%	$117.50	$119.11	$120.96	$123.10	$125.63
11.40%	$106.78	$107.93	$109.23	$110.71	$112.41
12.40%	$97.62	$98.47	$99.41	$100.47	$101.67
13.40%	$89.67	$90.31	$91.02	$91.80	$92.67
14.40%	$82.70	$83.19	$83.73	$84.32	$84.97

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$70.99

-68.2% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 2.23

Base Case

$99.41

-55.4% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.79

Bull Case

$132.84

-40.4% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.52

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth21.46%

Year 3 Revenue Growth10.94%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin31.15%

Terminal EBIT Margin32.01%

Tax Rate10.07%

Historical Capex / Rev2.77%

NWC / Revenue21.48%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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