Sometimes beating expectations isn't enough. KLA Corporation (KLAC) learned that lesson the hard way Friday, watching its shares tumble over 12% despite reporting earnings that technically cleared Wall Street's bar.
The semiconductor equipment maker posted second-quarter earnings of $8.85 per share Thursday, edging past the $8.80 analyst consensus. But investors were apparently looking for more than a modest beat, and what they got instead was guidance that straddled expectations without inspiring much confidence.
The Guidance Picture
For the third quarter, KLA expects adjusted earnings between $8.30 and $9.86 per share, compared to the Street's $8.93 estimate. Revenue guidance came in at $3.2 billion to $3.5 billion versus the $3.28 billion consensus—wide ranges that suggest some uncertainty ahead.
Why the Neutral Stance
Goldman Sachs analyst James Schneider raised his price target from $1,280 to $1,450 but kept his Neutral rating firmly in place. His reasoning gets at something interesting: KLA might be really good at what it does, but that doesn't necessarily make it a compelling buy right now.
Schneider acknowledged that KLA maintains a strong position with its leading process control product portfolio and continues gaining market share over time. The problem? The stock's valuation looks "relatively full" at current levels, and near-term industry spending trends aren't playing to KLA's strengths.
The analyst noted that capital equipment spending appears tilted toward DRAM and favors companies with stronger exposure to etch and deposition tools rather than process control. That's not KLA's sweet spot.
The Numbers Behind the Reaction
Quarterly revenue matched Wall Street expectations, with gross margin coming in slightly above consensus. Non-GAAP earnings landed near Street estimates but fell modestly short of Goldman's internal forecast. Systems revenue met expectations while services revenue exceeded both internal and consensus projections—a bright spot in an otherwise middling report.
Looking Ahead
Management projects total wafer fab equipment spending will reach approximately $135 billion in 2026, including advanced packaging. Core WFE spending is expected to grow high-single to low-double digits to roughly $120 billion. KLA anticipates moderate revenue growth early in 2026, picking up steam later in the year.
The China picture adds another layer. After a modest decline in 2025, management expects China's WFE market to bounce back in 2026, contributing a mid-to-high 20% revenue share next year. Schneider also noted that management slightly tempered advanced packaging growth expectations while still affirming strong momentum in that segment.
At last check Friday, KLAC shares were trading at $1,477.00, down 12.33% as investors weighed a solid company against a stretched valuation.
