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Advanced memory technology may be an underestimated beneficiary of the increased spending on artificial intelligence, and Stifel sees Lam Research as an overlooked AI chip play.

On Monday, analyst Brian Chin raised his rating for Lam stock (ticker: LRCX) to Buy from Hold. He also increased his price target for the memory chip equipment maker to $725 from $505.

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Advanced memory technology may be an underestimated beneficiary of the increased spending on artificial intelligence, and Stifel sees Lam Research as an overlooked AI chip play.

On Monday, analyst Brian Chin raised his rating for Lam stock (ticker: LRCX) to Buy from Hold. He also increased his price target for the memory chip equipment maker to $725 from $505.

High bandwidth memory (HBM)[is] the under-appreciated piece of AI acceleration, he wrote. We view Lam as the prime near-and-longer term beneficiary of HBM-driven DRAM [memory chip] growth.

Lam shares were up 2.6% to $639.70 in afternoon trading Monday.

Excitement over generative AI has been surging this year. The technology ingests text, images, and videos in a brute-force manner to create content. Interest in this form of AI was sparked by OpenAIs release of ChatGPT late last year.

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The analyst noted that Lams chip equipment is required to produce the newer advanced HBM memory semiconductors. HBM is needed for AI applications and AI chips.

Effectively, as transistor density and FLOPS (floating point operations per second) are increasing [for AI], memory is the bottleneck, he wrote. We view the expansion of generative AI as accelerating the growth of HBM.

Lam shares have risen by about 37% over the past 12 months. The iShares Semiconductor ETF (SOXX), which tracks the performance of the ICE Semiconductor Index, has traded up 31% in the same period.

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Write to Tae Kim at tae.kim@barrons.com

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Lam Is an Underappreciated AI Chip Play. Heres Why. - Barron's