Shares of Lam have run up rapidly in Thursday's trading, soaring over 6% at daily highs as Micron, one of its primary partners, may have finally built in a rebound for memory manufacturers.
According to FactSet, Micron is Lam's fifth most prominent partner. While a cut in capex might seem like a negative for Lam, that is a myopic view according to Action Alerts PLUS portfolio manager Jim Cramer.
"We are seeing Micron as a leader, again, as it blinked, it is producing less to get the inventory of DRAMs cleaner or at least no longer in glut. To do that it has to order and idle, meaning order fewer machines and shut down some assembly lines," Cramer commented. "I know it seems counterintuitive but that actually drives up the value of a chip equipment maker like Lam Research because when a company blinks that has historically signaled the bottom."
His Action Alerts team added that long term demand characteristics spelled out by Micron CEO Sanjay Mehrotra and the new technologically integrated economy expected by executives make Lam an attractive option.
"When we marry Micron's comments about supply and future demand with our Lam Research thesis, we see the need for industry capex to ramp up in the future. Although LRCX did go through a brief window of weakness just two weeks ago, we used that pullback to add to our position three separate times," the team noted. "More investors today are beginning to see what we previously expected, and that is why LRCX is trading ~$8 higher in reaction to Micron today. It's not about a near-term tweak in capex, it's about strong demand trends in the future leading to earnings power."
That is bolstered by the buyback program that Lam executives executed while the stock hit a snag earlier this year. At this point, the price of those shares looks to have been a bargain.
As such, it might behoove some longer-term tech investors to take a look at Lam Research.
For nearer term investors, the charts of Lam Research have improved for a momentum trade as well, while volume remains high.
For more on the technicals for the tech stock click here.
How Much Money Will I Need to Retire?
Want to learn about retirement planning from some of the nation's top experts? Join TheStreet's Robert "Mr. Retirement" Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.