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KLA Corporation KLAC shares dropped 15.1% post second-quarter fiscal 2026 results on Jan. 29. The plunge can be attributed to the company’s not-so-impressive guidance, as well as operational headwinds. 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 also reflects the rapidly escalating cost of DRAM chips used in KLA’s image processing computers that ship with its systems, thereby hurting gross margin. Increasing lead times of its products due to supply constraints and negative tariff impact, roughly 100 bps, are headwinds in the near term.
So, what should investors do with KLA shares? Let’s find out?
KLA shares have jumped 90.6% in the trailing 12 months, outperforming the Zacks Computer and Technology sector’s return of 23.1% and the Zacks Electronics-Miscellaneous Products industry’s appreciation of 37.4%. KLA is benefiting from its dominant process control market share, strong AI infrastructure investment and momentum in advanced packaging.
The company has outperformed peers, including Applied Materials AMAT, ASML Holding ASML and Axcelis Technologies ACLS, in the past year. Shares of Applied Materials, ASML Holding and Axcelis have returned 81.9%, 87% and 48.1%, respectively, over the same timeframe.
KLA is benefiting from strong demand for leading-edge logic, high-bandwidth memory and advanced packaging, which is driving top-line growth. Advanced packaging revenues are expected to grow mid-to-high teens on a year-over-year basis in 2026. Strong investments in WFE and advanced packaging represent a strong growth opportunity for the company. 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.
KLA’s robust portfolio and its leadership in process control systems are enabling customers to manage increasing design complexity. Process control accelerates time to results by resolving process integration challenges during the fab ramp-up phase to optimize time to market for a diverse mix of semiconductor designs.
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. This bodes well for KLAC’s top-line growth.
KLAC expects the core WFE market to grow in the high single to low double digits in 2026, reaching the low $120 billion range, up from approximately $110 billion in 2025. The company expects the advanced packaging component of the market to grow at a similar rate to roughly $12 billion for a total market forecast in the mid-$130 billion range, an increase in the low double digits versus its forecast for 2025.
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $36.58 per share, up 3% over the past 30 days and indicating 9.9% growth from 2025’s reported figure. The consensus mark for fiscal 2026 revenues is pegged at $13.39 billion, suggesting 10.1% growth from the 2025’s reported figure.
KLA Corporation price-consensus-chart | KLA Corporation Quote
The Zacks Consensus Estimate for third-quarter fiscal 2026 earnings is pegged at $9.12 per share, up 2.4% over the past 30 days and indicating 8.4% growth over the year-ago quarter’s reported figure. The consensus mark for third-quarter fiscal 2026 revenues is pegged at $3.37 billion, suggesting 9.9% growth from the year-ago quarter’s reported figure.
KLAC shares are trading at a premium, as suggested by a Value Score of F.
In terms of the forward 12-month price-to-earnings (P/E), KLAC is trading at 33.83X, higher than the broader sector and peers. The broader sector is trading at 26.08X while Applied Materials and Axcelis trade at 32.21X and 20.17X, respectively. However, ASML is pricey with a P/E multiple of 41.48.
Technically, KLA is currently trading above the 50-day and the 200-day moving averages, indicating a bullish trend.
KLA benefits from strong demand for advanced packaging despite increasing lead times and conservative guidance. Robust AI demand bodes well for KLAC’s prospects and justifies a premium valuation.
KLA currently has a Zacks Rank #1 (Strong Buy), which suggests that investors should start accumulating the stock right now as the dip offers a massive opportunity. 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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