Earnings Options Strategy | Upstream Semiconductor Sector: AMAT/KLAC/LRCX – Which Will Secure More Orders?

The semiconductor equipment sector has recently experienced volatility and a pullback. Earlier, driven by strong performance in AI computing and memory chips, AI hardware stocks were among the best-performing sectors this year. Compared to other AI-related segments, these stocks have demonstrated more stable revenue growth and are less cyclical than memory chip stocks. $Taiwan Semiconductor (TSM.US)$ Its recent upward revision of capital expenditures during its earnings call directly improved profit expectations for these companies.This is also why, despite the stock price pullback, some market participants still believe the long-term AI investment thesis could remain a central market theme.

As the most upstream wafer equipment manufacturers in the AI hardware supply chain, $Applied Materials (AMAT.US)$ 、 $KLA Corp (KLAC.US)$ and $Lam Research (LRCX.US)$ the future production volumes and order books of these three companies will be key factors influencing sector expectations. They will report earnings after market close on August 13, July 28, and July 29, respectively.

Applied Materials $Applied Materials (AMAT.US)$

AMAT is still expected to post the highest sales; the market anticipates quarterly revenue of $9 billion, up 23.3% year-over-year.Progress at the company’s EPIC Center is a key focus for investors. Launched in 2023 and set to become operational this year, the EPIC Center breaks from traditional semiconductor R&D models by co-locating equipment makers, foundries, and suppliers. This allows customers to access next-generation equipment years earlier at Applied Materials’ R&D wafer fab, enhancing customer loyalty. In particular, the participation of MU, SKHY, and Taiwan Semiconductor is critical. With Taiwan Semiconductor now embedded in the facility, the feedback cycle between foundry demand and equipment development has shortened from quarterly to weekly.

KLA Corp $KLA Corp (KLAC.US)$

Benefiting from rapidly rising demand for inspection equipment driven by advanced process nodes, the market expects KLAC’s revenue to continue growing at a double-digit percentage rate.In May this year, the company announced a 10-for-1 stock split and raised its quarterly dividend by 21%. Following the official implementation of the split on June 11, its share price rose consecutively. The company also added a new $7 billion share repurchase authorization, significantly boosting stock liquidity and shareholder returns.

Lam Research$Lam Research (LRCX.US)$

Lam Research is benefiting from increased etch equipment demand driven by rising chip complexity and has delivered over 20% revenue growth for multiple consecutive quarters.Memory chips have significantly driven demand for etch equipment, and this trend is accelerating. The 3D architecture of memory chips (vertical stacking) requires more etching steps compared to the planar structure of logic chips. In 3D NAND, each additional layer necessitates high-aspect-ratio (HAR) etching to drill channel holes. This is the most technically challenging and highest-value segment within the etch equipment market. Lam Research holds approximately 45% share of the overall etch equipment market and is nearly dominant in the 3D NAND channel etch segment.

The market expects revenue growth of 28.8% this quarter. Last quarter, LRCX’s net profit margin exceeded 30%, demonstrating strong profitability.

Summary of Risks and Opportunities

Potential Positive Catalysts: Semiconductor foundry capacity expansion

Risks to Monitor: Slowing demand growth

Valuation: Applied Materials (AMAT) currently trades at a P/E ratio of 52.11x, at the 98th percentile of its historical range over the past five years. KLA Corp (KLAC) currently trades at a P/E ratio of 60.80x, also at the 98th percentile of its five-year historical range. Lam Research (LRCX) currently trades at a P/E ratio of 60.36x, at the 97th percentile of its five-year historical range.

Options Market Signals

Taking AMAT as an example: entering July, AMAT’s stock price has pulled back from its recent high and entered a period of downward volatility. However, valuation levels remain historically elevated. Options market signals show AMAT’s put/call volume ratio at 1.24, open interest ratio at 1.29, implied volatility (IV) at 99.82%, and IV percentile at 99%.The market anticipates potential sharp volatility ahead and has taken substantial put positions to protect holdings against losses from a stock price decline.

1. If you hold semiconductor wafer or memory-related stocks and are concerned about a potential drop, wanting to hedge your risk proactively,

thenbuying put optionsis a suitable choice. Put options act as an 'insurance policy' for your underlying stock position at a relatively low cost. When the stock price falls, the put option’s value rises, partially offsetting losses from the stock decline.

If you believe current option implied volatility (IV) is high and premiums are expensive, you canbuy a put while simultaneously selling another put at a lower strike price to construct a bear put spreadstrategy. Compared to buying a single-leg put, this spread strategy offers more moderate profit and loss profiles but can still generate gains if the stock price declines.

2. If you want to enter a position at a lower price while earning additional income,

you can sell a put option at your desired entry price. Currently, option IV is elevated, making option premiums relatively high—which benefits sellers. If the stock stays above the strike price at expiration, you keep the entire premium as profit and can repeat this process to collect more premium income. If the stock drops below the strike price and the put is exercised, you’ll be obligated to buy the stock at the strike price—effectively entering your position at your target price.

However, please note: options sellers face the risk of forced liquidation, so always remember to maintain sufficient margin when opening a position~

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Options Risk Disclosure:An option is a contract that grants the holder the right—but not the obligation—to buy or sell an underlying asset at a predetermined price on or before a specified date. Option prices are influenced by multiple factors, including the current price of the underlying asset, the strike price, time to expiration, and implied volatility. Implied volatility reflects the market’s expectation of future price fluctuations over the life of the option; it is derived by reverse-engineering the Black-Scholes pricing model and is commonly viewed as an indicator of market sentiment. When investors anticipate higher volatility, they may be willing to pay more for options to hedge their risk, resulting in higher implied volatility. Traders and investors use implied volatility to assess the attractiveness of option prices, identify potential mispricings, and manage their risk exposure.

Disclaimer:This content does not constitute an offer, solicitation, recommendation, opinion, or any form of guarantee regarding any securities, financial products, or instruments. The risk of loss in trading options can be substantial. In certain circumstances, your losses may exceed the initial margin deposit. Even if you place contingent orders such as 'stop-loss' or 'limit' orders, there is no assurance that losses will be avoided, as market conditions may prevent execution of these orders. You may be required to deposit additional margin on short notice. If you fail to meet such margin calls within the stipulated time, your open positions may be liquidated. You remain fully liable for any resulting deficit in your account. Therefore, prior to trading options, you should thoroughly research and understand how options work and carefully consider whether such trading aligns with your financial situation and investment objectives. If you trade options, you should become familiar with the procedures for exercising options and handling expiration, as well as your rights and obligations upon exercise or expiration. Options trading involves significant risk and is not suitable for all investors. Investors should carefully read"Characteristics and Risks of Standardized Options"。

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