After you receive this Alert, we will be buying 25 shares of Lam Research (LRCX) at roughly $168.00. Following the trade, LRCX will represent 2.57% of the portfolio.
This morning analysts at Morgan Stanley released a note on semiconductor maker Marvell Technology Group (MRVL) , entitled "Outlook weaker as storage bottoms out." Furthermore, in the note, the analysts stated that while the company's quarterly release was weak, there was "positive commentary that orders support a bottom," adding "we do see April as a clear bottom."
Members should recall that we have been looking for a bottom call in the semi space as indication of a slowdown in chip maker capex reductions relating to wafer fab equipment. The thinking being that as chip maker pricing power deteriorated, so too would capex to the detriment of capital equipment makes such as Lam Research (we believe this has already been priced in).
However, the resulting dynamic would then be that as demand rebounded (as indicated by the order commentary on the Marvell call) the lack of capex would result in demand growth outpacing supply growth. As this plays out, we expect the chip makers to once again ramp up expenditures on fab equipment to the benefit of Lam Research.
Our decision to continue to scaling in now, rather than wait for further indications of capex growth are due to the simple fact that catching an actual bottom is nearly impossible. We believe shares will continue to be supported until that time thanks to a healthy ~2.6% dividend and $5 billion share repurchase program -- a significant amount compared to the company's $25 billion market cap.