What changed in the latest results and subsequent guidance?

  • In the first quarter of fiscal 2027 ending in September 2026, KLA reported revenue of $4.136 billion, up 28.9% year over year and above Wells Fargo’s prior estimate of $4.045 billion; non-GAAP earnings per share were $1.22, above the bank’s estimate of $1.19.
  • The company expects revenue in the second half of 2026 to grow 25% from the first half, up from its previous forecast of 20%, because of progress in long-lead-time supply areas; it also reiterated that revenue will continue to grow sequentially through 2027.
  • KLA raised its calendar 2026 wafer fab equipment spending forecast from slightly above $150 billion to the mid-$150 billion range and expects spending to exceed $200 billion in 2027. Wells Fargo said both views were in line with market expectations following Lam Research’s results.

Why might KLA outpace equipment spending growth?

  • The company expects a 60∶40 split between foundry and logic chips and memory chips in semiconductor process control systems revenue in 2027. On that basis, Wells Fargo estimates that foundry and logic revenue could grow more than 30% that year, with strong growth in memory as well.
  • Wells Fargo believes inspection sampling rates could remain high as 2-nanometer technology adopts backside power delivery; high-performance computing chips also require more intensive process control at 5 and 3 nanometers. Advanced packaging and advanced-node projects outside TSMC are two additional opportunities.
  • The company also faces customer and market concentration constraints: foundry and logic account for most system revenue, of which 75% comes from advanced nodes, where the customer base is limited; export or customer restrictions involving China are another risk.

How will services and expenses affect profit?

  • A growing installed base and customers’ focus on equipment performance support service revenue growth. KLA expects 2026 service revenue growth to be near the upper end of its long-term target range of 13%–15% and is confident it can maintain that level in 2027 and beyond; Wells Fargo raised its service revenue forecasts accordingly.
  • The company expects product R&D and infrastructure investment to drive sequential expense increases through 2027, but at a slower rate than revenue. Wells Fargo estimates that quarterly operating expenses will rise by more than $30 million per quarter, above the previous target of $15 million–$20 million per quarter, while still expecting the company to meet its goal of converting 40%–50% of incremental revenue into incremental operating profit.

Why did the price target fall despite higher earnings forecasts?

  • Wells Fargo raised its calendar 2027 revenue forecast from $19.95 billion to $20.86 billion and its non-GAAP earnings per share forecast from $6.16 to $6.45; it also raised its 2028 revenue forecast from $23.58 billion to $24.39 billion.
  • Despite the higher earnings forecasts, Wells Fargo cut its price target from $245 to $210 because valuation multiples in the semiconductor and equipment sectors contracted, and maintained its Overweight rating.