KLA's Q2 Earnings Loom: Should the KLAC Stock Be in Your Portfolio?

KLA KLAC is set to report its second-quarter fiscal 2026 results on Jan. 29.

For the to-be-reported quarter, KLAC expects revenues of $3.225 billion, plus/minus $150 million. The Zacks Consensus Estimate for revenues is pegged at $3.26 billion, indicating an increase of 6.1% from the year-ago quarter’s reported figure.

KLA expects non-GAAP earnings of $8.70 per share, plus/minus 78 cents. The consensus mark for earnings is pegged at $8.82 per share, up 3 cents over the past 30 days, indicating year-over-year growth of 7.6%.

Consensus Estimate Trend

KLAC’s earnings have surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 5.86%. 

KLA Corporation Price and EPS Surprise

KLA Corporation price-eps-surprise | KLA Corporation Quote

Let us see how things have shaped up for the upcoming announcement.

Key Factors to Note Ahead of KLAC’s Q2 Results

KLA is benefiting from its dominant process control market share, strong AI infrastructure investment and momentum in advanced packaging. AI continues to serve as a key catalyst for KLA as compute efficiency advancements fuel demand for advanced semiconductors and sophisticated process control solutions. 

KLA’s fiscal second-quarter results are expected to have benefited from the growing importance of process control, as it reduces time to debug process integration challenges in the fab ramp phase and optimizes yield across a high-volume manufacturing environment. An increasing complexity of advanced packaging is creating strong demand for KLA’s process control solutions. 

The advanced packaging business has robust growth prospects driven by increasing complexity in chip integration and expanding AI infrastructure requirements. Strong spending in development of leading-edge logic nodes and high-bandwidth memory in DRAM is expected to have driven KLAC’s top-line growth in the to-be-reported quarter. 

However, gross margin in the to-be-reported quarter is expected to have suffered from an unfavorable product mix as well as a negative impact of tariffs.

KLAC Shares Outperform Sector & Peers

KLA shares have jumped 119.5% in the trailing 12 months, outperforming the Zacks Computer and Technology sector’s return of 25.9% and the Zacks Electronics-Miscellaneous Products industry’s appreciation of 40.4%. The company has outperformed peers, including Applied Materials AMAT, Teradyne TER and Axcelis Technologies ACLS, in the past year. Shares of Applied Materials, Teradyne and Axcelis have returned 84.8%, 90% and 30.7%, respectively, over the same timeframe.

KLAC Stock’s Performance

The KLAC stock is not so cheap, as suggested by the Value Score of F. In terms of the forward 12-month price-to-earnings (P/E), KLAC is trading at 38.36X, higher than the broader sector and peers. The broader sector is trading at 27.21X while Applied Materials and Axcelis trade at 31.95X and 20.22X, respectively. However, Teradyne is pricey with a P/E multiple of 44.69.

KLAC Stock is Trading at a Premium

KLA's Prospects Ride on Strong Advanced Packaging Growth

KLA is benefiting from strong demand for leading-edge logic, high-bandwidth memory (HBM) and advanced packaging, which is driving top-line growth. Growth of advanced packaging supporting heterogeneous chip integration has become a new market for KLA, which is currently worth $11 billion and growing faster than core WFE.

Moreover, the growing investment in custom silicon, particularly among hyperscalers developing their own custom chips, has led to a proliferation of unique device designs. This has put customers under pressure to deliver performance, volume and time to market, resulting in strong demand for advanced process control. This aids KLA’s prospects as each new chip design requires rigorous inspection, metrology and yield optimization solutions. 

KLA generates solid cash flow, which allows management the opportunity to invest in product innovations, acquisitions and business development. The company ended the first quarter of fiscal 2026 with $4.7 billion in total cash, cash equivalents and marketable securities and $5.9 billion in debt. The company has a flexible and attractive bond maturity profile.

KLAC expects to meaningfully outperform the mid-to high single-digit WFE growth rate estimated in 2025, driven by rising process control intensity, inclusive of the significant growth of the advanced packaging market. For 2026, HBM is expected to grow faster than overall logic/foundry growth. Over the long term, KLAC targets to deliver 40% to 50% incremental non-GAAP operating margin leverage on strong revenue growth.

Conclusion

KLAC is benefiting from strong demand for leading-edge logic, HBM and advanced packaging, which is driving market share growth in the semiconductor industry. Accelerating investment in AI infrastructure bodes well for KLA’s prospects. The company’s robust portfolio and its leadership in process control systems are enabling customers to manage increasing design complexity. These factors justify a premium valuation.

KLA currently sports a Zacks Rank #1 (Strong Buy) and a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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