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KLAC benefits from strong advanced packaging demand driven by AI and HPC chip complexity growth.
KLA expects advanced packaging systems revenues to increase in the mid-to-high teens in 2026.
KLAC faces supply constraints, tariff headwinds, and stiff competition from ASML and Applied Materials.
KLA (KLAC - Free Report) is benefiting from strong advanced packaging growth as demand for more powerful chips continues to grow. The increasing complexity of the semiconductor development process, particularly due to growing deployment of AI and High-Performance Computing (HPC) applications, is driving significant growth for KLAC’s process control offerings.
KLAC continues to see strong momentum in advanced packaging revenue growth and market share, with total systems revenue of approximately $950 million, representing more than 70% year-over-year growth in calendar 2025. The company expects calendar 2026 growth in the mid-to-high-teens range, driven by strong demand for process control products.
KLA expects the core WFE market to grow in the high-single to low-double digits, with the market expected to be low $120 billion range, up from approximately $110 billion in 2025. The advanced packaging component of the market is expected to grow at a similar rate to approximately $12 billion, for a total market forecast in the mid-$130 billion range, an increase in the low double digits versus KLA’s 2025 forecast.
KLA now expects third-quarter fiscal 2026 revenues of $3.35 billion (+/- $150 million), reflecting a modestly weak product mix on a sequential basis. The guidance reflects the rapidly increasing lead times of its products due to supply constraints and the negative tariff impact of roughly 100 bps, which are near-term headwinds. The Zacks Consensus Estimate for third-quarter fiscal 2026 revenues is currently pegged at $3.38 billion, suggesting 10.5% growth from the figure reported in the year-ago quarter.
Tough Competition Hurts KLAC’s Prospects
KLA is facing stiff competition from the likes of ASML (ASML - Free Report) and Applied Materials (AMAT - Free Report) in the advanced packaging area.
Sustained demand for AI and HPC chips by global data centers, AI labs and hyperscalers has reinforced ASML’s long-term growth outlook. The company provides extreme ultraviolet (EUV) semiconductor lithography tools to chip manufacturers, enabling them to accelerate capacity expansion. ASML is benefiting from a growing installed base, which is driving high-margin service and upgrade revenues, as customers increasingly view upgrades as the fastest way to add capacity.
Applied Materials is at the forefront of AI-driven semiconductor innovations. It is a major manufacturer of semiconductor fabrication equipment, covering deposition, etching and inspection, serving the most crucial stages of chip manufacturing. The AI demand, EUV and node transitions are directly fueling advanced packaging, which is a major growth driver for Applied Materials. The company benefits from strong AI demand, which will lead to more capacity expansion. AI chips, such as GPUs and accelerators, require chiplets, HBM stacked memory and high-speed interconnects, all of which depend on advanced packaging. More AI chips will result in increased packaging steps, ultimately driving higher AMAT revenues.
KLAC shares have jumped 25.9% year to date, outperforming the broader Zacks Computer and Technology sector’s drop of 5%.
KLAC’s Stock Performance
Image Source: Zacks Investment Research
KLA stock is overvalued, with a forward 12-month price/sales of 12.65X compared with the broader sector’s 5.91X. KLAC has a Value Score of F.
KLAC’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $36.62 per share, up 4 cents over the past 30 days, suggesting 10% growth from the figure reported in fiscal 2025.
View the Zacks #1 Rank List
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Advanced Packaging Growth Drives KLAC's Prospects: What's Ahead?
Key Takeaways
KLA (KLAC - Free Report) is benefiting from strong advanced packaging growth as demand for more powerful chips continues to grow. The increasing complexity of the semiconductor development process, particularly due to growing deployment of AI and High-Performance Computing (HPC) applications, is driving significant growth for KLAC’s process control offerings.
KLAC continues to see strong momentum in advanced packaging revenue growth and market share, with total systems revenue of approximately $950 million, representing more than 70% year-over-year growth in calendar 2025. The company expects calendar 2026 growth in the mid-to-high-teens range, driven by strong demand for process control products.
KLA expects the core WFE market to grow in the high-single to low-double digits, with the market expected to be low $120 billion range, up from approximately $110 billion in 2025. The advanced packaging component of the market is expected to grow at a similar rate to approximately $12 billion, for a total market forecast in the mid-$130 billion range, an increase in the low double digits versus KLA’s 2025 forecast.
KLA now expects third-quarter fiscal 2026 revenues of $3.35 billion (+/- $150 million), reflecting a modestly weak product mix on a sequential basis. The guidance reflects the rapidly increasing lead times of its products due to supply constraints and the negative tariff impact of roughly 100 bps, which are near-term headwinds. The Zacks Consensus Estimate for third-quarter fiscal 2026 revenues is currently pegged at $3.38 billion, suggesting 10.5% growth from the figure reported in the year-ago quarter.
Tough Competition Hurts KLAC’s Prospects
KLA is facing stiff competition from the likes of ASML (ASML - Free Report) and Applied Materials (AMAT - Free Report) in the advanced packaging area.
Sustained demand for AI and HPC chips by global data centers, AI labs and hyperscalers has reinforced ASML’s long-term growth outlook. The company provides extreme ultraviolet (EUV) semiconductor lithography tools to chip manufacturers, enabling them to accelerate capacity expansion. ASML is benefiting from a growing installed base, which is driving high-margin service and upgrade revenues, as customers increasingly view upgrades as the fastest way to add capacity.
Applied Materials is at the forefront of AI-driven semiconductor innovations. It is a major manufacturer of semiconductor fabrication equipment, covering deposition, etching and inspection, serving the most crucial stages of chip manufacturing. The AI demand, EUV and node transitions are directly fueling advanced packaging, which is a major growth driver for Applied Materials. The company benefits from strong AI demand, which will lead to more capacity expansion. AI chips, such as GPUs and accelerators, require chiplets, HBM stacked memory and high-speed interconnects, all of which depend on advanced packaging. More AI chips will result in increased packaging steps, ultimately driving higher AMAT revenues.
KLAC’s Share Price Performance, Valuation & Estimates
KLAC shares have jumped 25.9% year to date, outperforming the broader Zacks Computer and Technology sector’s drop of 5%.
KLAC’s Stock Performance
Image Source: Zacks Investment Research
KLA stock is overvalued, with a forward 12-month price/sales of 12.65X compared with the broader sector’s 5.91X. KLAC has a Value Score of F.
KLAC’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $36.62 per share, up 4 cents over the past 30 days, suggesting 10% growth from the figure reported in fiscal 2025.
KLA Corporation Price and Consensus
KLA Corporation price-consensus-chart | KLA Corporation Quote
KLA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.