Group 1 - The analysis focuses on identifying companies with a wide economic moat and long-lasting competitive advantage through key metrics [1] - The emphasis is on high-quality companies that can outperform the market over the long run due to their competitive advantages and high levels of defensibility [1] - The analysis is primarily focused on European and North American companies, without constraints regarding market capitalization, covering both large cap and small cap companies [1] Group 2 - The analyst has a beneficial long position in the shares of Intel (INTC) through stock ownership, options, or other derivatives [2] - The article expresses the analyst's own opinions and is not receiving compensation from any company mentioned [2]

Core Viewpoint - BofA Securities analyst Vivek Arya anticipates fourth-quarter earnings for semiconductor capital equipment, with key reports from ASML Holding, Lam Research Corp, and KLA Corp scheduled for late January [1] Subsector Sentiment - Year-to-date sentiment in the semiconductor capital equipment sector has improved, but complexities arise from potential impacts of DeepSeek's advancements [2] - Risks include reduced AI-related spending if DeepSeek's R1 leads to lower demand for large language models, capital expenditure cuts in memory sectors, and high consensus estimates compared to industry growth expectations [2] Positive Catalysts - If DeepSeek's technology makes inference more cost-effective at the edge, it could trigger a device upgrade cycle in PCs and smartphones, benefiting leading-edge Wafer Fab Equipment [3] - Recent developments include less severe China export restrictions, a positive capex outlook for Taiwan Semiconductor Manufacturing Co, and Intel's capital expenditure plans remaining intact [3] Market Forecasts - Arya maintains a $105 billion Wafer Fab Equipment outlook for calendar 2025, expecting alignment on key issues with upcoming earnings reports [4] - Price targets for KLA Corp, Nova Ltd, and Camtek Ltd have been raised due to favorable data points for leading-edge foundry/logic and HBM spending [4] China Market Insights - The forecast for China’s Wafer Fab Equipment market has been increased to $31.5 billion, reflecting a 15% year-over-year decline, as local semiconductor companies gain market share [5] Growth Estimates - Consensus estimates for the top five semiconductor capital equipment companies project a 10% year-over-year growth for calendar 2025, which is above Arya's forecast of 5% [6] - Excluding ASML, the top semiconductor capital equipment growth is estimated at 8% [6] Stock Performance - Despite the DeepSeek sell-off, semiconductor capital equipment stocks have outperformed the sector year-to-date, with notable gains from Nova Ltd, KLA Corp, Applied Materials, Camtek Ltd, and Lam Research [7] Valuation Insights - Valuations for semiconductor capital equipment companies have been adjusted to reflect anticipated WFE growth, with long-term CAGR projected at 7.5% through 2030-2032 [8] - The sector exhibits superior free cash flow margins compared to the median for S&P 500 industrial companies [8]

Core Viewpoint - The announcement of DeepSeek's new open-source large language model (LLM) has raised concerns about the future demand for advanced semiconductor chips, impacting semiconductor manufacturing equipment stocks significantly [1][2][3]. Semiconductor Manufacturing Equipment Stocks - Shares of semiconductor manufacturing equipment companies such as Lam Research, KLA, and ASML have seen declines, with Lam Research down 5.6%, KLA down 6.3%, and ASML down 6.5% as of 11:55 a.m. ET [3]. - The sales of these companies have slumped in 2024 due to prior equipment purchases by China and ongoing sanctions limiting further sales [5]. - There are concerns that if China can produce LLMs with fewer and cheaper chips, it may not need to expand production capacity, leading to slower global sales of semiconductor manufacturing equipment [6]. Valuation and Growth Projections - Lam Research is currently valued at just over 25 times trailing earnings, KLA at 34 times, and ASML at 40 times, indicating varying levels of valuation among these stocks [8]. - Long-term earnings growth estimates suggest that Lam and KLA are expected to grow earnings at about 15% annually over the next five years, while ASML is projected to grow at 17% [9]. - The current growth projections may be overly optimistic given the implications of DeepSeek's announcement, potentially leading to higher PEG ratios and lower actual growth rates than previously anticipated [10]. Investment Considerations - The current sell-off in semiconductor manufacturing equipment stocks may not yet present a clear buying opportunity, and a margin of safety is advised before making investment decisions [11].

Core Viewpoint - KLA Corporation is set to report its second-quarter fiscal 2025 results, with expectations of strong revenue growth driven by demand in its wafer inspection business and advanced packaging portfolio, despite challenges in its China operations and PCB segment [1][5][6]. Revenue Expectations - KLA anticipates revenues of $2.95 billion, with a variance of $150 million, compared to the Zacks Consensus Estimate of $2.93 billion, reflecting a year-over-year increase of 17.98% [2]. - The company expects to achieve over $500 million in revenues from its advanced packaging portfolio in calendar year 2024, indicating strong customer adoption [5]. Earnings Projections - KLA forecasts non-GAAP earnings of $7.75 per share, with a variance of 60 cents, while the consensus estimate stands at $7.73 per share, representing a year-over-year growth of 25.49% [3]. - The company has consistently surpassed the Zacks Consensus Estimate in the past four quarters, with an average surprise of 6.02% [3]. Market Dynamics - The performance in the second quarter is expected to benefit from robust demand for wafer inspection due to the increasing complexity of semiconductor devices and the adoption of advanced technologies [3]. - The services business is likely to see growth from a larger installed base and increased customer demand for maintenance and performance optimization [4]. Challenges - KLA faces challenges from export controls and geopolitical tensions, particularly affecting its operations in China, where revenue contribution is projected to decline from 42% to 30% in fiscal 2025 [5]. - The PCB and Component Inspection segment has struggled with consistent growth, which is expected to negatively impact the second-quarter performance [6].

Group 1: Stock Performance and Market Dynamics - Shares of semiconductor equipment companies such as Applied Materials, Lam Research, and KLA Corporation saw significant gains, with increases of 4.5%, 4%, and 4.3% respectively [1] - Despite these gains, these stocks are down between 20% and 32% from their summer highs, indicating a volatile market environment [1][4] Group 2: TSMC's Impact on the Semiconductor Industry - Taiwan Semiconductor Manufacturing Company (TSMC) reported higher-than-expected capital expenditures for the upcoming year, forecasting a substantial growth cycle [2][5] - TSMC predicts a near-20% compound annual growth rate (CAGR) for revenue from 2025 to 2029, driven by a mid-40% annual CAGR for AI accelerators [5][6] Group 3: Capital Expenditures and Equipment Demand - TSMC plans to increase its capital expenditures to between $38 billion and $42 billion, a 33% increase from the previous year, which is expected to benefit semiconductor equipment manufacturers [6][7] - The transition to new transistor technologies will expand the addressable market for companies like Lam and Applied, as these innovations require more advanced manufacturing processes [7] Group 4: Long-term Investment Outlook - Semiconductor capital equipment stocks are considered strong long-term holds due to their correlation with the growing semiconductor industry and their profitability [9] - Despite the volatility and potential for significant drawdowns, these stocks are recommended for investors who can withstand market fluctuations [10][11]

KLA Corporation KLAC shares are ripping higher on Thursday. They are trading in sympathy with Taiwan Semiconductor Manufacturing Company Limited TSM, which reported earnings ahead of estimates.But KLA Corporation may be about to reverse and head lower. This is why our team of technical analysts has made it our Stock of the Day.Momentum is a measurement of how far a stock has moved up or down in a given period of time. Most of the time, a stock will stay in its typical or usual trading range.If sellers are a ...

Stock Performance - KLA Corporation's shares have declined 23.1% in the past six months, underperforming the Zacks Computer & Technology sector's appreciation of 1.5% [1] - The company has underperformed peers such as Flex (37.1% gain), Garmin (29.3% gain), and Carrier Global (7.6% gain) over the same period [3] - However, KLA has outperformed the Zacks Electronics - Miscellaneous Products industry's decline of 38.2% [3] Segment Performance - Revenues from the PCB and Component Inspection segment saw a modest year-over-year increase of 1.4% but declined 1% sequentially in Q1 fiscal 2025 [1] Geopolitical and Market Challenges - KLA is navigating risks associated with export controls and geopolitical tensions, particularly in China [2] - China's revenue contribution is expected to drop from 42% to approximately 30% in 2025 [2] Financial Performance - Operating expenses rose to $560 million in the most recent quarter, impacting profitability [5] - Gross margin was 61.2% in Q1 fiscal 2025, slightly below the midpoint of the guided range due to a weaker-than-expected mix of systems products [6] Earnings Trends - The Zacks Consensus Estimate for Q3 fiscal 2025 non-GAAP earnings is $7.63 per share, down 0.9% over the past 30 days but indicating 45.06% year-over-year growth [7] - The consensus mark for fiscal 2025 earnings is $30.37 per share, down 0.8% over the past 30 days but indicating a 27.93% increase compared with fiscal 2024 [7] Investment and Growth Initiatives - KLA is making significant investments in growth initiatives and new product development, focusing on wafer inspection, advanced packaging solutions, and AI-driven tools [4] - These investments have led to higher operating expenses, impacting profitability [5] Historical Performance - KLA has a history of strong quarterly performance, with earnings surpassing the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 6.02% [8] Industry Position - KLA faces uncertainty around capital spending, with demand not aligning with the markets it serves [6] - Its increasing ties to memory makers like Micron and Toshiba are not yet significant enough to make a big impact [6]

Industry Overview - The semiconductor equipment manufacturing market, including KLA (NASDAQ: KLAC), experienced a significant downturn due to weaker-than-expected guidance from ASML and KLA's substantial exposure to China, which accounts for 43% of its revenue [1] Company-Specific Insights - KLA's revenue is heavily dependent on the Chinese market, with 43% of its revenue coming from China, making it vulnerable to market fluctuations and geopolitical risks [1] Technological Context - EUV lithography is a critical process in the semiconductor industry that requires ultra-clean vacuum technology, highlighting the importance of advanced manufacturing techniques in the sector [1] Analyst Background - The analyst has a strong background in the semiconductor industry, with a master's degree in Nanoscience, Nanotechnology, and Nano-Engineering, and extensive experience in both technical and business development roles within the industry [1]

Good news from Taiwan's Hon Hai Precision Industry company (better known as Foxconn) spread to the benefit of semiconductor stocks in general today. Foxconn reported 15% sales growth in Q4 2024, to $63.9 billion, a number that CNBC characterized as "bumper sales performance." The implied strong demand for AI semiconductor chips launched shares of Taiwan Semiconductor Manufacturing Company (TSM 5.58%) to an all-time high at Monday's opening bell. As of 10:35 a.m. ET, TSMC stock remains up a solid 4.9%. Share ...

In the latest market close, KLA (KLAC) reached $650.53, with a +0.39% movement compared to the previous day. The stock trailed the S&P 500, which registered a daily gain of 1.1%. Elsewhere, the Dow gained 0.91%, while the tech-heavy Nasdaq added 1.35%.Shares of the maker of equipment for manufacturing semiconductors have appreciated by 0.51% over the course of the past month, underperforming the Computer and Technology sector's gain of 5.09% and outperforming the S&P 500's gain of 0.22%.Analysts and investo ...