Lam Research’s Record Quarter Met with 7% Selloff as Advance Deposits Signal Order Book Softening

What happened

Lam Research delivered a blockbuster fiscal Q4, with revenue of $6.72B and EPS of $1.82 easily topping guidance, and gross margin hit 52%—the highest in twenty years. Despite the fourth consecutive record quarter, the stock fell 7% as the market focused on a third straight quarterly decline in customer advance deposits, a leading indicator that can quietly signal an order book rollover. The DeepValue master report had previously flagged this risk, noting weakening deferred revenue and a $300M drop in down payments that constrained demand visibility. The selloff was amplified by broader semiconductor sector worries about the durability of AI-driven capital spending, rather than any company-specific cash flow concerns. The disconnect between strong trailing results and negative price action underscores a shift in investor focus toward early-cycle warning signs amid elevated valuations.

Implication

The 7% drop on a beat reaffirms our WAIT rating and the thesis that current pricing assumes a sustained upcycle while early demand signals and sector sentiment are turning cautious. Until advance deposits reverse or management addresses China licensing risk, the risk/reward remains unfavorable near $433, with a more attractive entry around $360. The $480 trim level above remains a clear exit if the stock rallies on temporary optimism before these risks resolve.

Thesis delta

The bull case has weakened as the strong quarter was overshadowed by the deposit decline, confirming forward-looking indicators are rolling over. The WAIT thesis stands firm, and the bear scenario probability has modestly increased, reinforcing the need for a lower entry or clearer evidence that the cycle is not peaking.