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Why KLA Corporation Rallied Today
Key Points
KLA Corporation handily beat estimates for the September quarter and guided strongly for December.
The AI build-out requires new leading-edge fabs, where KLA's process control is paramount.
Management also stepped-up share repurchases last quarter when the stock was around these levels.
Shares of semiconductor equipment giant KLA Corporation (NASDAQ:KLAC) rallied on Thursday, up as much as 7.9%, before pulling back to a 5.7% gain as of 1:52 p.m. EDT.
KLA reported earnings last night that handily beat analysts' expectations, despite already-high estimates tied to the AI build-out. After a sectorwide sell-off at the start of October, the numbers provided a welcome relief to this semiconductor equipment giant.
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KLA is at the heart of the AI boom
KLA is the dominant provider of process control machines that locate defects at various steps in the chipmaking process. As semiconductor manufacturing becomes increasingly complex for leading-edge logic and memory chips, this puts an even greater onus on accuracy and defect detection, benefiting KLA.
This importance was on display last night, as KLA's revenue surged 28.8% to $4.14 billion, while adjusted (non-GAAP) earnings per share rallied 38.6% to $1.22 per share. Both figures beat expectations. Management also guided to strong sequential growth in the December quarter to $4.7 billion at the midpoint, along with an adjusted EPS estimate of $1.44. That guide was also well ahead of expectations.
CEO Rick Wallace noted, "Process control, and KLA in particular, continues to be critical to the AI ecosystem build-out and benefits from numerous ongoing inflections, including increases in leading-edge designs across foundry and logic, device size and value, memory complexity and performance requirements, and the importance of advanced packaging."
Image source: Getty Images.
KLA isn't cheap on the surface, but is well off its highs
After today's bounce, KLA trades at a little under 30 times its fiscal 2027 earnings estimates, with its fiscal year ending in June 2027, and about 24 times its fiscal 2028 estimates. However, it appears a pretty good bet that the fab build-out in both logic and memory will continue over those years, and KLA has a history of beating average estimates. As a positive sign, management stepped up share repurchases in the September quarter following the summer sell-off, indicating confidence in the stock price around these levels.
Billy Duberstein and/or his clients have positions in KLA. The Motley Fool has positions in and recommends KLA. The Motley Fool has a disclosure policy.