Lam Research Corp. (LRCX) reported a 30% FCF margin on semiconductor equipment sales in its latest quarter, potentially undervaluing the stock by almost 19%. The stock is trading at $156.31 and has a market cap of $197.2 billion, with strong margins and cash flow.

With a 3% revenue increase from AI chip equipment sales, Lam Research is expanding its product portfolio while retreating from China investments. The company generated strong gross and operating margins, with operating cash flow up 13.3% YoY. FCF margins were lower due to higher capex spending but remain strong at 30%.

Analysts project Lam Research’s revenue to reach $21.83 billion in the next 12 months, with an estimated FCF forecast of $6.55 billion. This could lead to a market cap increase of 18.6%, indicating an undervalued stock. Analyst price targets average $167.27 per share, as Lam Research continues to benefit from AI-driven demand.

Investors can consider buying ITM calls and selling short OTM puts to leverage the potential upside in Lam Research stock. By accumulating short-put income to pay for ITM calls, investors can benefit from the stock’s rise to $185.38, potentially yielding a +148.5% profit, outperforming the expected 19% return from holding the stock.

Read more at Barchart: Lam Research Corp’s Strong FCF Margins From AI-Related Chip Equipment Sales Shows LRCX Stock is Cheap