KLA Sank After Earnings—Then Analysts Started Raising Targets

Key Points

• KLA is one of the lesser-discussed leaders in semiconductor equipment, but its importance is undeniable.
• The stock has nearly doubled over the past 52 weeks, but it just sold off heavily post-earnings.
• Counterintuitively, Wall Street analysts boosted their KLA price targets by more than 10% on average following the results, signaling potential in the stock.

Within the wafer fabrication equipment (WFE) landscape, several high-profile companies tend to dominate the discussion. This includes firms like ASML NASDAQ: ASML, Lam Research NASDAQ: LRCX, and Applied Materials NASDAQ: AMAT.

Despite attracting less attention than some of its peers, KLA NASDAQ: KLAC is a vitally important player in the WFE space and in the broader semiconductor ecosystem. With a market capitalization near $185 billion, KLA is the world’s fourth most valuable stock in the WFE industry. Over the past 52 weeks, KLA shares have delivered a total return of nearly 93%.

However, the company appears to have just hit a bump in the road. KLA released its latest earnings report on Jan. 29. Despite beating estimates on sales and adjusted earnings per share (EPS), the stock tanked 15% the next day. Meanwhile, Wall Street analysts significantly raised their price targets afterward, suggesting a possible opportunity in KLA shares.

Understanding KLA: Process Control Behemoth With Expanding Share

KLA is a dominant player in the semiconductor manufacturing process control market. Its equipment and software help manufacturers ensure that their products meet strict quality standards and operate efficiently. Two vital steps in process control are inspection and metrology. Inspection involves looking for defects in products, enabling manufacturers to identify and address issues in their processes.

Metrology involves measuring dimensions at extremely small scales to ensure that products meet precise specifications. Inspection and metrology ultimately help customers generate the maximum amount of product at the lowest cost, improving manufacturing yields.

KLA said it held 54.4% of the process control market in 2021, more than four times that of its nearest competitor. As of the end of 2024, KLA said its share in this market grew by 250 basis points versus 2019. As semiconductors become more advanced, they also require increased process control. This dynamic gives the firm confidence that it will continue to increase its market share in the overall WFE industry.

KLA vs LRCX: What Investors May Have Missed

In its latest quarter, KLA reported revenue of $3.3 billion, up 7.1% and slightly above expectations of $3.25 billion. Adjusted EPS came in at $8.85, increasing by 8%, beating estimates of $8.75. However, confusion about KLA’s outlook for industry-wide WFE growth led to a sell-off in shares. One day prior to KLA’s report, Lam Research reported earnings. Lam said they expect the WFE industry to grow from $110 billion in 2025 to $135 billion in 2026, implying a 23% increase.

KLA provided similar expectations for 2026, expecting the total WFE market to grow to the “mid-$130 billion range.” However, the headline that many investors likely ran with was “we expect the core WFE market to grow in the high-single to low-double digits." That growth rate does not line up with Lam’s 23% figure.

Importantly, KLA breaks out the WFE industry into core WFE and advanced packaging. It sees advanced packaging growing from around $11 billion to $12 billion in 2026. KLA incorporated advanced packaging into its definition of the WFE market for 2025, while Lam did not.

Based on KLA’s definition, it expects the overall WFE market to grow from ~$121 billion to the “mid $130 billion range.” This implies around 12% growth, lining up with the firm’s statements. Overall, KLA’s forecast does not imply weakness versus Lam’s. Rather, some investors seemed to have misinterpreted the company’s statements, leading to a sell-off.

Analysts Significantly Boost KLA Price Targets Despite 15% Fall

Despite shares falling steeply after earnings, MarketBeat tracked approximately 10 analysts who lifted their price targets afterward. On average, their targets rose by 12%, a stark contrast to the stock’s 15% fall.

Among analysts who updated or issued targets after Jan. 29, the average is approximately $1,712. This compares favorably to the MarketBeat consensus target near $1,583. These figures imply 21% and 12% upside, respectively. Forecasts incorporating the latest data are considerably more bullish than older projections, a clear positive sign for KLA’s outlook.

Even with its recent fall, KLA shares do not appear overly cheap. The stock’s forward price to earnings ratio near 35x is around 36% above its three-year average. Still, given artificial intelligence-driven semiconductor supply shortages, the WFE industry is in a good position. As a leader in this space and a market-share gainer, KLA's outlook skews to the upside.