Every quarter when I write one of these updates, I try to find a new way to say “Lam Research beat expectations again” without sounding repetitive, yet every quarter, Lam makes that harder by simply doing it again, bigger and better. Fiscal Q4, released last week, was no exception: record revenue for the fourth consecutive quarter, the highest gross margin in 20 years, and record operating margin and EPS, with every single metric clearing the high end of management’s own guidance and the consensus.Most importantly, the underlying thesis only continues to strengthen, and Lam continues to reaffirm that it is by far the highest-quality pick in WFE, delivering the strongest numbers and for good reason. Revenue growth accelerated to 30% YoY this quarter, and the guidance for fiscal Q1 points to an acceleration to 53%. And underneath that acceleration sits the real engine of the thesis: chips aren’t just being produced in greater volume; they’re requiring meaningfully more etch and deposition steps to build than the chips they’re replacing, and Lam sits precisely at the center of that shift. That means Lam is not just riding a growing pie, but it’s also capturing a larger slice of it, gaining market share at a very good rate and outperforming peers.Layer a management team with a decade of near-flawless capital allocation on top of that, and you have a business compounding on every dimension that matters: revenue, margins, market share, and shareholder returns, all moving in the same direction at once.Lam is a sensational business, and it only gets better.Today, I want to update my thesis and view of the stock by breaking down the fiscal Q4 results and developments, before going over guidance and updating my financial model.Let’s delve in!This is a paid-exclusive analysis. Want full access? 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The company delivered record revenue for a fourth consecutive quarter, its highest gross margin in 20 years, and a record operating margin and EPS.Delving into the numbers, Lam reported total fiscal Q4 revenue of $6.72 billion, which beat the consensus by $50 million and came in above the midpoint of management’s guidance. Furthermore, this reflects a very strong 15% sequential improvement, reflecting the steep ramp in growth, and a 30% YoY gain, a strong improvement in growth from recent quarters, driven by strong growth in CSBG (services) revenue and huge, accelerating growth in NAND revenue.Deferred revenue at the end of the quarter was $2.43 billion, up 9% sequentially, mainly driven by customer down payments. For reference, this is revenue Lam has already received from customers for products or services it hasn’t fully delivered yet, so it isn’t yet counted as revenue. So, why does it matter? It provides a small insight into demand, since it means customers are locking in tools or service commitments ahead of actual delivery, which can hint at backlog strength. So, the strong sequential growth here is another promising demand signal.These numbers clearly reflect the incredible demand Lam continues to see for its equipment, which is no surprise at all given the rising CapEx spending by hyperscalers and, subsequently, Lam’s foundry customers. Simply put, the incredible demand for compute right now is driving huge demand for semiconductors, which in turn drives record investments by the likes of TSMC, Intel, Micron, SK Hynix, and Samsung to build additional production capacity to meet demand. And this CapEx flows directly to Lam and its peers, which provide the tools for semiconductor manufacturing.But don’t mistake this for just a volume story. You see, every additional unit of AI compute, whether it’s an HBM stack, an advanced logic chip, or a 3D-stacked memory die, requires more manufacturing steps to build than the chips it’s replacing due to rapid growth in complexity to drive performance. And that’s the real driver of the bullish thesis for Lam – it’s not just that more chips are being made; it’s that each chip now needs more equipment time to manufacture. Gate-all-around transistors, advanced packaging, and memory layer counts pushing ever higher all multiply the number of process steps per wafer, which means capital intensity per chip (simply the amount of revenue Lam and its peers can generate per chip produced) is rising even before you account for higher unit volumes. That is a structural shift, significantly growing the WFE TAM.And Lam is even better positioned than any of its peers due to its leading position in two key semiconductor manufacturing technologies — Deposition and Etching — and these are precisely the two categories where step-count is exploding the most. Simply put, the more advanced semiconductors get, the more deposition and etch steps they need, driving up the use intensity and demand for Lam’s systems. In plain terms, as chips are moving to 3D architectures to fit more compute in a single, smaller chip – a shift happening across every technology – deposition and etch intensity is expected to roughly double, since building taller, more vertically complex structures requires deeper etch and more precise deposition than the older, more planar approach.To hopefully clarify this a bit more for the less technical among us, you can think about these technologies like this: lithography (ASML’s DUV and EUV) draws the blueprint, but deposition and etch are what actually construct the buildings and roads. Therefore, every additional layer in a chip means another pass through deposition and etch, and while a 10% increase in layer count doesn’t translate 1:1 into WFE demand, it does structurally raise equipment intensity per wafer.That is why etch and deposition are two of the process categories absorbing the biggest step-up in tool intensity as chips get more complex, specifically because of the industry-wide shift to 3D structures (more layers, taller stacks, tighter geometries) across NAND, logic, DRAM, and packaging simultaneously.As a result, Lam expects to keep outperforming an industry that is already exploding, making it easily the most promising business in the WFE sector.Anyway, breaking down Q4 revenue by segment, systems revenue was up 24% YoY to $4.2 billion (63% of revenue), very much in line with 23% growth in Q3, with growth still held back by a lack of cleanroom space. As explained in past articles, new fabs and cleanroom expansions take years to build. This is the entire bottleneck right now. Semiconductor demand is exploding, but getting the fabrication facilities (fabs) online to produce them takes years, so the space available currently to deliver new manufacturing equipment, like Lam’s, is limited. This 24% growth in the quarter more so reflects available space than demand, which far outstrips this.Nonetheless, these are strong numbers!From a market perspective, memory made up 46% of Q4 systems revenue, up from 39% in Q3, mainly driven by NAND revenue (23% of revenue) more than doubling sequentially amid huge capacity investments here now picking up to meet data center demand, especially in 200-plus layer architectures, which is great for Lam, able to capture a huge chunk of the growing NAND capex pile.You see, NAND doesn’t shrink transistors to get denser, but it stacks layers. Where logic chips get smaller through miniaturization, NAND capacity increases by literally stacking more layers of memory cells vertically, now pushing past 200 layers per chip. And as every additional layer means another full round of etching and depositing, that is a huge growth driver for Lam. That is exactly why NAND is a huge opportunity for Lam specifically. As the industry moves from current 128-layer nodes to 500+ layer nodes, Lam sees its NAND SAM per wafer double, simply due to rising etch and deposition intensity, and we see this inflection happening this last quarter.Moving to DRAM (23% of revenue), revenue was flattish from the record Q3 quarter, still up strongly YoY, driven by upgrades across 1-alpha, 1-beta and 1-gamma nodes enabling DDR5, LPDDR5 and high-bandwidth memory, driving up deposition and etch intensity.Foundry was also strong, now representing 44% of systems revenue. A small drag here was a notable slowdown in mature node spending by customers in China, offset by strength in leading-edge node investments and advanced packaging, especially by TSMC. Crucially, as the industry transitions from FinFET to gate-all-around, the number of applications requiring surface treatment roughly doubles, and Lam, with its Argos etch system, offers one of the best solutions, helping Lam gain share here and drive growth – GAA is a growth enabler for Lam.Additionally, advanced packaging is turning into a real growth engine, now forecasted to grow by 70% YoY in 2026. The tailwind is strong with “AI performance will increasingly depend less on transistor density scaling and instead on integrating more chiplets, more HBM stacks, and greater memory bandwidth within a single package,” to quote management. Lam is gaining share here, and the opportunity is huge!Then, finally, a quick regional note. Following some weakness in domestic customer revenue, China as a percentage of revenue dropped to 26% in Q4, down from 34% in Q3 and 35% in the same quarter last year. I am quite happy with this decline, though revenue tends to be lumpy, so we could see this bounce back in the next few quarters. Nonetheless, revenue from China as a percentage of revenue should continue to decline over time, improving Lam’s risk profile.Moving to the other segment, CSBG (services) revenue in Q4 was up a blinding 17% sequentially and 43% YoY to $2.5 billion, still driven by strong, record-high upgrade demand and a growing installed base. Due to the lack of cleanroom space, customers are absolutely trying to squeeze every last bit of capacity out of the existing footprint, and one of the easiest and fastest ways to do this is by upgrading existing equipment to increase output, driving very strong growth in Lam’s upgrade business.Growth will likely remain strong here as cleanroom space will remain a constraint through at least 2028.On that note, let’s move to the P&L.