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AMAT offers faster 2026 sales and EPS growth, stronger estimate revisions and a lower forward P/E.
Semiconductor equipment companies are riding a powerful wave of AI-driven demand as chipmakers invest aggressively in leading-edge logic, DRAM, high-bandwidth memory and advanced packaging. In this environment, KLA Corporation (KLAC - Free Report) and Applied Materials, Inc. (AMAT - Free Report) are leveraging sharply different strengths to capture the next phase of wafer fab equipment growth. While both are benefiting from rising chip complexity and expanding customer visibility, differences in market exposure, growth breadth and near-term execution dynamics are beginning to set them apart.
KLA is anchored in process control, inspection, metrology and yield optimization — areas that become more critical as AI chips become larger, more complex and more expensive to manufacture. Applied Materials, meanwhile, has a broader equipment footprint across materials engineering, deposition, etch, leading-edge foundry/logic, DRAM and advanced packaging. This gives AMAT multiple paths to benefit as AI reshapes semiconductor manufacturing priorities.
For investors seeking exposure to the semiconductor equipment cycle’s AI-led upside, the key question is: Which of these equipment stocks offers the more compelling setup right now? Let’s break down the fundamentals, growth outlook and valuation to determine the better buy.
The Case for KLAC
KLA’s strength in process control remains central to its investment case. As chip architectures become more complex and AI chips require higher performance, tighter inspection, metrology and yield-management solutions are becoming increasingly critical. KLA’s tools help customers shorten learning cycles, improve production efficiency and manage yield in high-volume manufacturing environments. This positions the company well as a leading-edge foundry/logic provider, while demand for high-bandwidth memory and advanced packaging continues to grow.
KLA is also benefiting from rising process-control intensity across multiple phases of semiconductor manufacturing. Management noted that faster product cycles, higher-value wafers and masks, rising design complexity, greater variability and growing advanced-packaging requirements are increasing the need for process-control solutions. These tools help customers address process-integration challenges in R&D and early fab ramps while supporting yield management in high-volume production.
Advanced packaging is becoming a major growth driver for KLA. The company expects semiconductor process-control product revenue tied to advanced packaging to rise to roughly $1 billion in 2026 from about $635 million in 2025. Management also highlighted market-share gains in advanced wafer-level packaging, driven by continued customer adoption of its packaging portfolio. This is important because advanced packaging is increasingly critical for AI accelerators and high-bandwidth memory.
KLA’s services business also strengthens its investment case. The business benefits from a growing installed base, longer tool lifetimes and rising customer expectations for tool performance and availability. This provides KLA with a recurring revenue stream and supports strong free cash flow generation. The company emphasized that services remain an important part of the company’s long-term growth model and capital-return strategy.
Financially, KLA remains one of the strongest operators in the semiconductor equipment space, supported by strong margins, consistent free cash flow and shareholder-friendly capital returns. The company has also increased its long-term revenue growth targets and capital-allocation framework, reflecting confidence in sustained demand for process-control technologies. However, elevated DRAM chip costs, tariff-related pressure and product mix are expected to weigh on gross margin, with management pointing to a roughly 100-basis-point headwind over the next several quarters.
The Case for AMAT
Applied Materials is building strong structural momentum through its broad exposure to the most critical areas of AI-driven semiconductor spending. The company is benefiting from rising investments in leading-edge foundry/logic, DRAM and advanced packaging, which are becoming central to improving AI chip performance, power efficiency and cost. Management expects these three areas to account for more than 80% of the year-over-year growth in wafer fab equipment spending in 2026, with a similar demand profile likely in 2027.
At the technology level, Applied Materials is leveraging materials engineering to capture opportunities tied to major device architecture transitions. The shift to gate-all-around nodes is expanding the company’s addressable market and creating room for share gains. New products such as Trillium ALD and Precision PECVD are designed to support advanced transistor structures, helping chipmakers improve device performance and reduce leakage.
The company is also strengthening its position in DRAM and advanced packaging — two areas increasingly tied to AI infrastructure demand. AI computing is driving aggressive DRAM capacity additions, while high-bandwidth memory and chiplet-based architectures are increasing the need for more advanced packaging solutions. Applied Materials expects packaging revenues to grow more than 50% in calendar 2026, and its planned NEXX acquisition is aimed at expanding its panel-level packaging capabilities for larger AI accelerator packages.
Operationally, Applied Materials is benefiting from stronger customer visibility and better long-range planning. Customers are providing rolling eight-quarter forecasts, allowing the company to align manufacturing capacity, service resources and supplier readiness with future ramps. Applied Global Services adds another recurring growth driver, supported by higher fab utilization and more than 35,000 chambers connected to its AIx software capabilities. These efforts position AMAT to scale efficiently while supporting customers’ output, yield and cost-efficiency goals.
How Does the Zacks Consensus Estimate Compare for KLAC & AMAT?
The Zacks Consensus Estimate for KLA’s 2026 sales and EPS suggests year-over-year increases of 11.2% and 11.4%, respectively. In the past 60 days, earnings estimates for 2026 have risen 1.4%.
KLAC Earnings Estimate Trend
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Materials’ 2026 sales and EPS suggests year-over-year increases of 17.3% and 28.5%, respectively. In the past 60 days, earnings estimates for 2026 have increased 9%.
AMAT Earnings Estimate Trend
Image Source: Zacks Investment Research
Price Performance & Valuation of KLAC & AMAT
KLAC stock has rallied 58.4% in the past three months, outpacing its industry and the S&P 500’s rise of 48.3% and 13.4%, respectively. Meanwhile, Applied Materials’ shares have climbed 58.6% in the same time.
KLAC & AMAT Stock Three-Month Price Performance
Image Source: Zacks Investment Research
KLAC is trading at a forward 12-month price-to-earnings (P/E) ratio of 49.58X, above the industry average of 39.57X over the last year. AMAT’s forward 12-month P/E multiple sits at 40.13X over the same time frame.
Image Source: Zacks Investment Research
End Notes
Applied Materials stands out as the stronger investment candidate at this stage, supported by higher projected sales and EPS growth, stronger upward estimate revisions and a relatively more attractive valuation. Its exposure to leading-edge foundry/logic, DRAM and advanced packaging gives the company multiple avenues to benefit as AI-related manufacturing investments expand.
KLA remains a high-quality franchise, supported by process-control strength, strong margins, consistent free cash flow and growing advanced-packaging relevance. However, slower expected earnings growth, modest estimate revisions and a premium valuation suggest a less compelling entry point after the stock’s recent rally.
For investors seeking exposure to the semiconductor equipment cycle, AMAT offers a better risk-reward profile. Its stronger growth visibility, favorable estimate trend and Zacks Rank #2 (Buy) make it the more actionable choice over KLAC, which currently carries a Zacks Rank #3 (Hold).
View the Zacks #1 Rank List
Image: Bigstock
KLAC vs. AMAT: Which Chip Equipment Stock Is the Better Buy Now?
Key Takeaways
Semiconductor equipment companies are riding a powerful wave of AI-driven demand as chipmakers invest aggressively in leading-edge logic, DRAM, high-bandwidth memory and advanced packaging. In this environment, KLA Corporation (KLAC - Free Report) and Applied Materials, Inc. (AMAT - Free Report) are leveraging sharply different strengths to capture the next phase of wafer fab equipment growth. While both are benefiting from rising chip complexity and expanding customer visibility, differences in market exposure, growth breadth and near-term execution dynamics are beginning to set them apart.
KLA is anchored in process control, inspection, metrology and yield optimization — areas that become more critical as AI chips become larger, more complex and more expensive to manufacture. Applied Materials, meanwhile, has a broader equipment footprint across materials engineering, deposition, etch, leading-edge foundry/logic, DRAM and advanced packaging. This gives AMAT multiple paths to benefit as AI reshapes semiconductor manufacturing priorities.
For investors seeking exposure to the semiconductor equipment cycle’s AI-led upside, the key question is: Which of these equipment stocks offers the more compelling setup right now? Let’s break down the fundamentals, growth outlook and valuation to determine the better buy.
The Case for KLAC
KLA’s strength in process control remains central to its investment case. As chip architectures become more complex and AI chips require higher performance, tighter inspection, metrology and yield-management solutions are becoming increasingly critical. KLA’s tools help customers shorten learning cycles, improve production efficiency and manage yield in high-volume manufacturing environments. This positions the company well as a leading-edge foundry/logic provider, while demand for high-bandwidth memory and advanced packaging continues to grow.
KLA is also benefiting from rising process-control intensity across multiple phases of semiconductor manufacturing. Management noted that faster product cycles, higher-value wafers and masks, rising design complexity, greater variability and growing advanced-packaging requirements are increasing the need for process-control solutions. These tools help customers address process-integration challenges in R&D and early fab ramps while supporting yield management in high-volume production.
Advanced packaging is becoming a major growth driver for KLA. The company expects semiconductor process-control product revenue tied to advanced packaging to rise to roughly $1 billion in 2026 from about $635 million in 2025. Management also highlighted market-share gains in advanced wafer-level packaging, driven by continued customer adoption of its packaging portfolio. This is important because advanced packaging is increasingly critical for AI accelerators and high-bandwidth memory.
KLA’s services business also strengthens its investment case. The business benefits from a growing installed base, longer tool lifetimes and rising customer expectations for tool performance and availability. This provides KLA with a recurring revenue stream and supports strong free cash flow generation. The company emphasized that services remain an important part of the company’s long-term growth model and capital-return strategy.
Financially, KLA remains one of the strongest operators in the semiconductor equipment space, supported by strong margins, consistent free cash flow and shareholder-friendly capital returns. The company has also increased its long-term revenue growth targets and capital-allocation framework, reflecting confidence in sustained demand for process-control technologies. However, elevated DRAM chip costs, tariff-related pressure and product mix are expected to weigh on gross margin, with management pointing to a roughly 100-basis-point headwind over the next several quarters.
The Case for AMAT
Applied Materials is building strong structural momentum through its broad exposure to the most critical areas of AI-driven semiconductor spending. The company is benefiting from rising investments in leading-edge foundry/logic, DRAM and advanced packaging, which are becoming central to improving AI chip performance, power efficiency and cost. Management expects these three areas to account for more than 80% of the year-over-year growth in wafer fab equipment spending in 2026, with a similar demand profile likely in 2027.
At the technology level, Applied Materials is leveraging materials engineering to capture opportunities tied to major device architecture transitions. The shift to gate-all-around nodes is expanding the company’s addressable market and creating room for share gains. New products such as Trillium ALD and Precision PECVD are designed to support advanced transistor structures, helping chipmakers improve device performance and reduce leakage.
The company is also strengthening its position in DRAM and advanced packaging — two areas increasingly tied to AI infrastructure demand. AI computing is driving aggressive DRAM capacity additions, while high-bandwidth memory and chiplet-based architectures are increasing the need for more advanced packaging solutions. Applied Materials expects packaging revenues to grow more than 50% in calendar 2026, and its planned NEXX acquisition is aimed at expanding its panel-level packaging capabilities for larger AI accelerator packages.
Operationally, Applied Materials is benefiting from stronger customer visibility and better long-range planning. Customers are providing rolling eight-quarter forecasts, allowing the company to align manufacturing capacity, service resources and supplier readiness with future ramps. Applied Global Services adds another recurring growth driver, supported by higher fab utilization and more than 35,000 chambers connected to its AIx software capabilities. These efforts position AMAT to scale efficiently while supporting customers’ output, yield and cost-efficiency goals.
How Does the Zacks Consensus Estimate Compare for KLAC & AMAT?
The Zacks Consensus Estimate for KLA’s 2026 sales and EPS suggests year-over-year increases of 11.2% and 11.4%, respectively. In the past 60 days, earnings estimates for 2026 have risen 1.4%.
KLAC Earnings Estimate Trend
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Materials’ 2026 sales and EPS suggests year-over-year increases of 17.3% and 28.5%, respectively. In the past 60 days, earnings estimates for 2026 have increased 9%.
AMAT Earnings Estimate Trend
Image Source: Zacks Investment Research
Price Performance & Valuation of KLAC & AMAT
KLAC stock has rallied 58.4% in the past three months, outpacing its industry and the S&P 500’s rise of 48.3% and 13.4%, respectively. Meanwhile, Applied Materials’ shares have climbed 58.6% in the same time.
KLAC & AMAT Stock Three-Month Price Performance
Image Source: Zacks Investment Research
KLAC is trading at a forward 12-month price-to-earnings (P/E) ratio of 49.58X, above the industry average of 39.57X over the last year. AMAT’s forward 12-month P/E multiple sits at 40.13X over the same time frame.
Image Source: Zacks Investment Research
End Notes
Applied Materials stands out as the stronger investment candidate at this stage, supported by higher projected sales and EPS growth, stronger upward estimate revisions and a relatively more attractive valuation. Its exposure to leading-edge foundry/logic, DRAM and advanced packaging gives the company multiple avenues to benefit as AI-related manufacturing investments expand.
KLA remains a high-quality franchise, supported by process-control strength, strong margins, consistent free cash flow and growing advanced-packaging relevance. However, slower expected earnings growth, modest estimate revisions and a premium valuation suggest a less compelling entry point after the stock’s recent rally.
For investors seeking exposure to the semiconductor equipment cycle, AMAT offers a better risk-reward profile. Its stronger growth visibility, favorable estimate trend and Zacks Rank #2 (Buy) make it the more actionable choice over KLAC, which currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.