KLA Surges 42% in a Year: How Should Investors Play the Stock?

KLA KLAC shares have outperformed the Zacks Computer & Technology sector as well as its peers Applied Materials AMAT and Lam Research LRCX over the past year.

While KLA’s shares have returned 42.4%, Applied Materials and Lam Research gained 30.5% and 15.4%, respectively, over the past year. The broader sector has appreciated 40.5% over the same time frame.

The uptick can be attributed to the robust performance of the wafer inspection segment, fueled by increasing demand for advanced wafer inspection applications in leading-edge technology development.

KLAC is also benefiting from increasing advanced packaging demand that supports an increase in process control intensity, alongside growing investments across multiple nodes and rising capital intensity in Foundry & Logic, driving robust top-line growth.

Will KLA’s Strong Portfolio Aid Prospect?

KLA’s expanding portfolio has emerged as a major growth driver for its success, particularly in the advancing technology in integrated circuit (IC) substrate manufacturing.

KLAC recently introduced the industry’s most comprehensive range of process control and process-enabling solutions for IC substrate manufacturing, aimed at enhancing performance and profitability through advanced packaging technologies.

The company’s AI adoption is enhancing higher volume wafer manufacturing, leading to more complex designs and larger chip sizes. This has resulted in growing demands for advanced packaging, which is expected to drive KLA’s revenue growth.

KLA raised its estimate for annualized revenue from advanced packaging to more than $500 million by the end of 2024, reflecting the strong momentum generated by AI adoption. This forecast serves as a reflection of the robust demand for advanced packaging solutions, underscoring KLA’s key role in meeting industry needs.

KLAC Q1 Guidance Positive

KLA’s growing portfolio offerings will continue to help it sustain momentum in various end markets it serves.

For first-quarter fiscal 2025, revenues are expected to be $2.75 billion, +/- $150 million. KLA expects non-GAAP earnings of $7 per share, +/- 60 cents. 

The Zacks Consensus Estimate for first-quarter fiscal 2025 revenues is currently pegged at $2.76 billion, indicating year-over-year growth of 14.98%. 

The consensus mark for earnings is currently pegged at $7.03 per share, which increased by a penny in the past 30 days. The figure indicates a year-over-year increase of 22.47%. 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Macro Uncertainties & Competition to Hurt KLAC’s Prospects

Despite its strong portfolio, KLAC faces challenges due to intense competition, macroeconomic uncertainties, and weakness in the PCB, Display, and Component Inspection sectors. The softness in memory and leading-edge logic and foundry investments is a concern.

Amid these challenges, KLA is also contending with strong competition in the refurbished equipment market. While there are just a handful of suppliers making new tools, the refurbished space is more crowded, featuring many participants, including auctioneers, universities, and various online sales channels

eBay EBAY has emerged as a strong contender in this market, leveraging its platform to connect buyers and sellers of refurbished equipment. 

EBAY shares have outperformed KLAC, showcasing a remarkable increase of 59.8% over the past year.

What Should Investors Do With KLAC Stock?

KLAC stock is not so cheap, as its Value Score of D suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Sales, KLAC is trading at 9.42X, higher than the Zacks  Electronics - Miscellaneous Products industry’s 1.31X.

KLAC currently carries Zacks Rank #4 (Sell), which implies that investors should stay away from investing in this stock at present. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Only $1 to See All Zacks' Buys and Sells

We're not kidding.

Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.

Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.

See Stocks Now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 
eBay Inc. (EBAY): Free Stock Analysis Report
 
KLA Corporation (KLAC): Free Stock Analysis Report
 
Lam Research Corporation (LRCX): Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research