KLA Rides on Strong Advanced Packaging Growth: More Upside Ahead?

Core Insights - KLA (KLAC) is experiencing significant growth in advanced packaging due to rising demand for powerful chips, particularly in AI and High-Performance Computing (HPC) applications [1][2] - The company anticipates continued revenue growth driven by strong investments in process control products and advanced packaging, with expectations of mid-to-high teens growth in 2026 [2][3] Financial Performance - In calendar 2025, KLA's total systems revenues reached $950 million, marking a 70% year-over-year increase, primarily from advanced packaging revenue growth [2][10] - For fiscal Q3 2026, KLA projects revenues of $3.35 billion (+/- $150 million), reflecting challenges such as rising DRAM costs and supply constraints [4][10] - The Zacks Consensus Estimate for fiscal 2026 earnings is $36.58 per share, indicating a 9.9% growth from fiscal 2025 [15] Market Outlook - The core WFE market is expected to grow in the high single to low double digits in 2026, reaching approximately $120 billion, with advanced packaging projected to grow similarly to around $12 billion [3] - The advanced packaging market, supporting heterogeneous chip integration, is currently valued at $11 billion and is growing faster than the core WFE market [2] Competitive Landscape - KLA faces strong competition from ASML and Applied Materials, both of which are recognized for their process control technologies [5] - ASML is benefiting from sustained demand for AI and HPC chips, providing EUV lithography tools that enhance capacity expansion for chip manufacturers [6] - Applied Materials is leading in AI-driven semiconductor innovations and expects significant growth in wafer fabrication equipment businesses in 2026 [7] Stock Performance - KLA's shares have increased by 104.1% over the past 12 months, outperforming the broader Zacks Computer and Technology sector, which returned 24.4% [8]