LRCX Stock Record Highs Could Face 2026 Reality Check

Lam Research Corporation (LRCX) has seen its stock reach record highs but faces potential challenges that investors should monitor as we approach 2026. While the company has historically managed to bounce back from significant declines, current market conditions suggest that a reality check might not be far off.

Recent Performance and Risks Ahead

Historically, LRCX has dealt with steep stock price drops, falling over 30% multiple times in recent years. These declines wiped out billions in market capitalization. As the company heads towards 2026, it faces several key risks which could affect performance:

• Margin Compression: Anticipated gross margin decrease to approximately 48.5% for the December 2025 quarter due to unfavorable customer mix and tariffs.
• China Revenue Concentration: Projected revenue decline of about $600 million for calendar year 2026 due to U.S. trade rules impacting its Chinese business.
• Excess Inventory Risks: High levels of inventory could threaten future revenue and profit if new orders decline significantly.

Detailed Risk Overview

1. Margin Compression

LRCX’s gross margin peaked at 50.6% in September 2025, but a dip is expected in Q2 2026. This decline may lead to a reevaluation of the company’s profitability and its P/E ratio of 51.9.

2. China Revenue Concentration

Management anticipates that China may account for less than 30% of total revenues in 2026, a substantial drop. Competitors like Applied Materials have also acknowledged similar risks due to changing trade regulations.

3. Excess Inventory Risks

With Days Inventory Outstanding remaining unusually high, LRCX may face significant price drops if inventory write-downs become necessary or new orders dwindle. Insights from peers in the industry hint at broader inventory concerns.

Historical Stock Performance

Lam Research’s stock is not immune to downturns. During major events such as the Dot-Com bubble and the Global Financial Crisis, stocks plummeted by approximately 75% and 56%, respectively. Even smaller disturbances in 2018 and during the Covid-19 pandemic resulted in declines of around 45%.

Current Financial Health

Despite potential risks, LRCX has demonstrated strong revenue growth, witnessing a 25.7% increase over the last twelve months and an average growth rate of 4% over the past three years. Current cash generation metrics show a free cash flow margin of about 28.3% and an operating margin of 33%. However, as LRCX heads towards 2026, monitoring these financial indicators will be crucial.

Diversifying Investments for Stability

Investors looking for steadier growth may benefit from a multi-asset portfolio, which can help balance out individual stock volatility. Historical data shows that diversified strategies have led to positive returns even during market downturns, such as those seen during the financial crisis of 2008-09. A prudent approach, combined with insights from platforms like Filmogaz.com, can offer valuable guidance for navigating potential market fluctuations as 2026 approaches.