KLA Benefits from Robust Expansion in Advanced Packaging: Is There Further Potential for Gains?

KLA’s Growth Driven by Advanced Packaging Demand

KLA (KLAC) is experiencing robust expansion in its advanced packaging segment, fueled by the increasing need for high-performance chips. As the importance of process control in chip packaging rises, the company is well positioned for continued success. The surge in advanced semiconductor technologies—especially at the 2-nanometer level, which is attracting significant investment and heightened process control—continues to propel AI-related investments. The growing complexity and value of semiconductor packaging, particularly for AI and high-performance computing (HPC) applications, are major contributors to KLA’s advanced packaging momentum.

In 2025, KLA reported total systems revenue of $950 million, marking a 70% year-over-year increase, largely due to gains in advanced packaging and market share. The company anticipates this positive trend will persist into 2026, projecting mid-to-high teen percentage growth, driven by strong demand for process control solutions. Investments in wafer fabrication equipment (WFE) and advanced packaging are opening new avenues for expansion. The advanced packaging market, now valued at $11 billion, is growing at a faster pace than KLA’s core WFE business.

KLA forecasts the core WFE market to expand by high single to low double digits in 2026, reaching just over $120 billion, up from around $110 billion in 2025. The advanced packaging segment is expected to grow at a similar rate, approaching $12 billion, pushing the total market to the mid-$130 billion range—a low double-digit increase from the prior year’s outlook.

For the third quarter of fiscal 2026, KLA projects revenue of $3.35 billion, plus or minus $150 million. This guidance reflects a slightly less favorable product mix compared to the previous quarter, as well as rising costs for DRAM chips used in KLA’s image processing systems, which are impacting gross margins. Longer lead times due to supply chain constraints and a roughly 100 basis point negative effect from tariffs present near-term challenges. The Zacks Consensus Estimate for Q3 fiscal 2026 revenue stands at $3.37 billion, indicating a 9.9% increase over the same period last year.

Competitive Landscape Challenges KLA

KLA faces intense competition from industry leaders such as ASML and Applied Materials, both recognized for their advanced process control technologies.

Ongoing demand for AI and HPC chips from global data centers, AI research facilities, and hyperscale operators has strengthened ASML’s long-term outlook. ASML supplies extreme ultraviolet (EUV) lithography equipment, enabling chipmakers to rapidly expand capacity. The company also benefits from a growing installed base, which drives high-margin service and upgrade revenue as customers seek quick capacity enhancements.

Applied Materials leads in AI-driven semiconductor innovation, manufacturing equipment for critical chipmaking processes such as deposition, etching, and inspection. The company expects its advanced foundry, logic, DRAM, and high-bandwidth memory (HBM) segments to be the fastest-growing areas in wafer fabrication equipment by 2026.

KLA’s Stock Performance, Valuation, and Analyst Estimates

Over the past year, KLA’s share price has soared 104.1%, significantly outperforming the broader Computer and Technology sector, which returned 24.4% during the same period.

KLA Stock Performance Chart

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Despite its strong performance, KLA’s stock is considered overvalued, trading at a forward 12-month price-to-sales ratio of 13.17, compared to the sector average of 6.38. The company currently holds a Value Score of F.

KLA Valuation Overview

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Analysts surveyed by Zacks project KLA’s fiscal 2026 earnings at $36.58 per share, a 2.5% increase over the past month and a 9.9% rise compared to fiscal 2025 results.

KLA Corporation Price and Consensus

KLA Corporation price-consensus-chart | KLA Corporation Quote

KLA currently holds a Zacks Rank #2 (Buy). For a full list of Zacks #1 Rank (Strong Buy) stocks, click here.

Zacks’ Top Semiconductor Stock Pick

A lesser-known company in the semiconductor space is emerging as a key player, offering products that industry giants like NVIDIA do not. Positioned to capitalize on the next wave of market growth, this company is just beginning to gain attention—an ideal time for investors.

With rapid earnings growth and a widening customer base, the company is set to benefit from surging demand for artificial intelligence, machine learning, and the Internet of Things. Global semiconductor manufacturing is forecast to grow from $452 billion in 2021 to $971 billion by 2028.

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KLA Corporation (KLAC): Free Stock Analysis Report

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Original article published by Zacks Investment Research

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