Key Takeaways
Lam Research's advanced packaging business is on track to grow more than 50% in 2026, turning a niche equipment category into a major growth engine as AI chipmakers race to overcome the limits of traditional transistor scaling.
Lam Research Corp.'s advanced packaging equipment revenue is expected to surge more than 50% in 2026, as AI chipmakers increase spending on etch and deposition tools needed to stack memory and processors in dense three-dimensional structures.
"Advanced packaging is becoming a gating factor for AI performance," Tim Archer, chief executive officer of Lam Research, said on the company's earnings call. "We're seeing customers invest in capacity well ahead of demand."
In the fiscal third quarter ended March 30, Lam posted record revenue of $5.84 billion, up 24% from a year earlier and beating the consensus estimate by 1.3%. Non-GAAP earnings of $1.47 per share topped expectations by 8.1%. The company guided for revenue of about $6.60 billion in the current quarter, with operating margin expanding to roughly 36.5%.
The packaging boom represents a structural expansion of Lam's addressable market beyond conventional wafer processing. With the broader wafer fab equipment market expected to reach about $140 billion in 2026, Lam's packaging business — if it sustains 50% growth — could add hundreds of millions in incremental revenue. Shares of Lam, which hit an all-time high above $333, trade at 42.9 times forward earnings, a premium to the sector's 34.8 times.
Why Packaging Matters for AI Chips
Unlike traditional planar chip designs, AI accelerators such as Nvidia Corp.'s H100 and the upcoming Vera Rubin systems rely on advanced packaging techniques — including CoWoS (chip-on-wafer-on-substrate) and hybrid bonding — to connect multiple compute dies with high-bandwidth memory in a single package. This approach improves data transfer speeds while reducing power consumption, but it requires specialized etch and deposition equipment that Lam Research supplies.
The shift is driving demand for Lam's products across multiple chip architectures. High-bandwidth memory, or HBM, stacks require precise vertical etching to create through-silicon vias, while chiplet-based designs need advanced redistribution layers. Lam's ALTUS ALD tool, which uses molybdenum to improve conductivity at smaller nodes, and its Aether platform for dielectric etching are both seeing increased adoption in packaging applications, according to the company.
Competitors Chase the Same Opportunity
Lam is not alone in targeting this market. Applied Materials Inc., the largest semiconductor equipment maker by revenue, has described advanced packaging as a multibillion-dollar opportunity and is developing materials engineering solutions for 2.5D and 3D chip integration. In its fiscal second quarter, Applied Materials posted revenue of $7.91 billion, up 11% from a year earlier, with its Semiconductor Systems segment as the primary growth driver.
KLA Corp., another major equipment supplier, is also benefiting from the packaging trend as chipmakers increase inspection and metrology spending to ensure yield in complex multi-die assemblies.
The competitive dynamics could intensify as the packaging equipment market expands. Lam's focus on etch and deposition gives it a specific advantage in the memory-stacking portion of the packaging workflow, while Applied Materials has broader coverage across deposition, removal, and materials engineering.
Investment Implications
Lam Research's packaging growth comes at a time when the company is already delivering strong financial results across its core business. Systems revenue rose 24% to $3.73 billion in the fiscal third quarter, while the Customer Support Business Group — a recurring revenue stream from spare parts and services — hit a record $2.11 billion, up 25%.
Several Wall Street firms have raised their price targets on Lam, with Cantor Fitzgerald moving to $425 and Morgan Stanley upgrading the stock to Overweight with a $331 target, citing confidence in Lam's potential share gains in DRAM and NAND wafer fab equipment by 2027. Mizuho pointed to higher wafer fab equipment spending estimates for 2026 and 2027, supported by NAND node transitions and TSMC spending.
At 42.9 times forward earnings, Lam trades at a premium to Applied Materials at roughly 25 times and KLA at about 28 times. The premium reflects expectations that Lam's exposure to leading-edge logic, memory, and now advanced packaging will deliver above-peer earnings growth. Consensus estimates project fiscal 2026 revenue growth of 25% and earnings per share growth of 37%, with similar momentum expected in fiscal 2027.
This article is for informational purposes only and does not constitute investment advice.
