Semiconductor shares have performed exceptionally well in the stock market throughout 2025. The PHLX Semiconductor Sector index has surged by 26% so far, which is twice the return of the S&P 500 index for the same period.
This strong showing from semiconductor stocks is largely due to robust demand for chips that support artificial intelligence (AI) applications across a wide range of devices. This trend has fueled impressive revenue and profit growth for leading chipmakers such as Nvidia ( NVDA 0.46%) and Broadcom ( AVGO 0.99%).
Nvidia’s commanding position in the AI GPU market has resulted in a 32% increase in its share price this year. Broadcom has outpaced even that, with its stock climbing 44% in 2025, thanks to the rising popularity of its custom AI chips. However, there is another company that has outperformed both Nvidia and Broadcom this year.
Let’s examine this company more closely and see why it could offer even greater returns for investors.
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The surge in chip demand has propelled this equipment maker forward
Lam Research ( LRCX 5.46%) might not be as widely recognized as Nvidia or Broadcom, but its stock has soared an impressive 84% in 2025. The reasons behind Lam’s outperformance over Nvidia and Broadcom are clear.
Lam’s growth accelerated significantly in its most recent fiscal year, which concluded in June 2025. The company’s revenue climbed 23% year over year to reach $18.4 billion, while earnings surged 43% to $4.15 per share. This strong performance is understandable, given that Lam Research supplies equipment essential for manufacturing semiconductors.
The sector has experienced robust expansion, fueled by the soaring need for AI chips used in data centers and other technologies. Industry projections suggest that sales of semiconductor equipment could rise by 7% this year, surpassing $125 billion. Next year, that figure is expected to grow even further to $138 billion.
Still, the market could expand at an even faster rate. Major cloud service providers are rapidly increasing their capital expenditures to address massive order backlogs. In fact, leading tech firms are set to boost their capex by 63% this year, reaching $364 billion.
This substantial increase in spending will benefit chip manufacturers and foundries, who are the primary buyers of the equipment Lam produces. According to the company, Samsung and Taiwan Semiconductor Manufacturing are its "most significant customers."
It’s also notable that 41% of Lam’s revenue comes from equipment used in memory production. This segment is experiencing rapid growth, driven by the increasing demand for high-bandwidth memory (HBM) in AI GPUs and the rising memory requirements in AI-enabled smartphones and computers.
With both logic and memory chip sales gaining momentum due to AI, as recent results from various chipmakers show, Lam Research appears well-positioned to maintain strong growth in the future. This outlook helps explain why the company issued upbeat guidance for the first quarter of fiscal 2026.
Lam anticipates a 25% year-over-year revenue increase in the current quarter, reaching $5.2 billion. Adjusted (non-GAAP) earnings are projected to rise nearly 40% from the same period last year to $1.20 per share. Given the ongoing rise in semiconductor equipment spending, Lam could very well continue its impressive earnings growth throughout the year and beyond.
Lam Research shares could climb even higher
As discussed, Lam is forecasting strong gains in both revenue and earnings for the first quarter of fiscal 2026. Analysts, however, expect the company’s full-year earnings to grow at a single-digit rate this year, followed by solid double-digit increases over the next few years.
LRCX EPS Estimates for Current Fiscal Year data by YCharts
Given the anticipated increase in semiconductor equipment investment in 2026 and beyond, Lam may well exceed Wall Street’s projections. Even if earnings reach $5.90 per share in three years, applying the Nasdaq-100 index’s price-to-earnings ratio of 33 would value the stock at $194.
This suggests Lam’s shares could rise by 50% from current levels. And considering the company’s potential to grow earnings faster than expected, this AI-related stock could deliver even greater returns.
