Did IBM Just Tell the Truth About AI?

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Jon Quast, Matt Frankel, and Lou Whiteman discuss:

• Lam Research’s recurring services business.
• Advanced packaging in the semiconductor industry and why it matters.
• The helium shortage.
• Rising agricultural costs.
• IBM’s unique take on AI spending.
• What could boost IBM’s business.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. When you’re ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Oct. 22, 2026.

Jon Quast: Revenue is up, but stocks are down. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I’m your host today, Jon Quast. I’m joined by Lou Whiteman and Matt Frankel. Today, we’re going to talk about why the stock market is down big here as we tape, and also we’re going to talk about results from IBM. But first, we want to start by talking about Lam Research. Know this is not a company that is researching sheep out in the field. This is a company that provides critical machinery for the semiconductor industry. Some of our listeners might be familiar with a company such as ASML, which really has a corner on its market. Lam Research does have some competition when it comes to the machinery that it provides, but it just reported its quarterly results. It’s down about 9% as we tape and it’s actually down about 45% from its 2026 high. Really pulling back, but as we look at the most recent quarter here, revenue up 22%, gross margin has improved, operating margin, 40%. These are historically great numbers, maybe only expecting 15% in 2027 because of supply chain issues, but this isn’t just a company providing the machinery, and I think that’s the part of the business that investors are most familiar with, but it has a more recurring part of the business as well.

Matt Frankel: Think of this more as a razor and blades model. You’re talking about the services side of the business. The customer support business group, they do spares, upgrades, they provide service contracts. That did $2.5 billion of sales. It was up 40%. That’s the fourth straight record quarter for the service business. They expect it to grow by about 30% this year. That’s more than twice the company’s long-term target. The key takeaway for investors is that every tool that Lam sells creates years of service revenue. More tools running, the harder the tools are running, the more parts and upgrades are needed. It’s the recurring steadier part of the business. Performance-based service contracts are going on with memory makers, so that’s nice; Lam is getting paid for uptime, not just making parts. The real key takeaway is that this is a razor and blades model and the blades are driving the growth right now.

Lou Whiteman: It really reminds me of aerospace in all the best ways. And I know that’s not what tech investors want to hear, but I mean, look, some of these big programs, it’s $1 billion in sales ends up being $1 trillion program over time. There is something to that here where you don’t just look at what they’re selling today, but what that means rippling through the system. That’s so important given the heightened demand that this is a cyclical business. I think it’s so, the services side of it is the way you can see past the bubble if there is indeed a bubble, and it should help investors to stay in the stock even when things get elevated, I would think.

Jon Quast: One of the things that Lam research here pointing out as a long-term driver for its business is really this thing called advanced packaging, and not that we are the so-called gurus when it comes to semiconductor investing, but I thought that it would be beneficial for our listeners just to look into what is advanced packaging, Matt.

Matt Frankel: This is a case where it’s good that we’re not the gurus. We’re good at explaining things in simple terms, which is what you need with something like this. I don’t want to give a graduate-level dissertation on what advanced packaging is, but in simple words, instead of making one giant chip, you stack and connect multiple chips together. Think of it as building a skyscraper in layers instead of just one big single-story building. This is how AI chips and high bandwidth memory get their performance. And it helps Lam because stacking chips like this requires a lot of etching, which is a fancy word for just drilling little holes through silicon, and deposition, which is laying down those copper connections that you see on all the little chip designs. This is growing very fast. Lam expects advanced packaging sales to grow by about 70% this year. As AI chips evolve, get more sophisticated, things like this should only increase. It’s a big part of the business. It’s important to know what it is, and it’s important to know that it’s a big growth driver.

Jon Quast: To that point, Lam management here pointing out that spending for equipment, which is the big part of the Lam business and other players such as Applied Materials. But seeing this equipment spend going from around 150 billion to maybe over 200 billion next year, Lou, I’m curious, does this alleviate some of those cyclicality concerns or is that still here?

Lou Whiteman: I think the concerns are still here, but it pushes them out, which is important. Look, cycles happen, but they don’t have to happen overnight, and you can, as an investor, make money off the cycle if you can have visibility of how far it will go. What I see here more is a risk, and I think the stock is down from its high for the year. But look, there are natural limits to how fast they can grow to meet this demand. There are caps on how high growth can go despite demand. But again, this is where maybe some of the air coming out of valuation helps. Yes, if you’re dealing with a cyclical industry, and I think this is a cyclical industry, you want visibility for how long the up cycle will last. What management is telling us right now is that it’s safe to swim at least into 2028, you don’t have to jump out of a pool now and head for the exits.

Jon Quast: I’m glad that you brought up valuation because I did want to bring that up here now that it is down; it’s trading at a price-to-earnings ratio of about 35. I don’t know. Do either of you see this as a potentially good value stock here or is this something that you’re still avoiding?

Matt Frankel: It’s tough to call it a value stock. On the bull side of it, it trades for roughly 22 times forward earnings right now. It’s for a company that’s growing earnings at a 75% rate and has a 40% operating margin, record cash flow. As Lou just said, visibility into at least 2028. On the bear side, equipment stocks are historically cyclical. I don’t know what peak margin is, but you’re definitely probably close to it right now. The China business is falling off, and supply constraints are capping the upside. Putting all that together, the stock is taking a pretty decent haircut on a revenue beat and good guidance; it’s a dip that I would nibble on, but I wouldn’t call it a value stock, but it’s definitely an interesting play right now.

Lou Whiteman: I think this is where it’s really hard to be an investor because I don’t think I already said, I don’t think it’s time to sell on this cy

Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.