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KLA Corporation (KLAC) is sharply lower after reporting its Q2 (Dec) results last night. The company beat EPS expectations, though the upside was more modest than in recent quarters, while revenue increased 7.1% yr/yr to $3.3 bln, also better than expected. Q3 guidance essentially in line, with EPS of $8.30-$9.86 and revenue of $3.20-$3.50 bln.

• Growth continues to be fueled by AI-driven investment in leading-edge foundry/logic, HBM-led DRAM, and advanced packaging, with rising complexity keeping process-control demand elevated.
• Semiconductor Process Control revenue rose 9% yr/yr to $3.0 bln, split 60% foundry/logic and 40% memory, supported by scaling and a richer design activity and HPC/HBM-driven DRAM strength.
• Advanced packaging continued to grow as SoCs increase the value of process control in the package. CY25 Revenue was about $950 mln, up over 70% yr/yr, and expects mid-teens growth in CY26.
• Gross margin was 60 bps above guidance at 62.6%, but KLAC guided for a sequential step-down to 61.75% at the midpoint on weaker mix and higher DRAM chip costs, which it views as transitory.
• KLAC said its 2026 industry outlook has improved, expecting core WFE to grow in the high-single to low-double digits to the low-$120 bln range ($110 bln in 2025), with advanced packaging growing at a similar pace. That view is constructive but not as bullish as peer LRCX, which pegged 2026 WFE around $135 bln and sees advanced packaging up more than 40% yr/yr, outpacing overall WFE growth.
• Consistent with LRCX, KLAC expects CY26 to be back-half weighted, with mid-single-digit growth in 1H and acceleration in 2H, due to longer customer lead times from supply constraints.

Briefing.com Analyst Insight

KLAC continues to benefit from AI-led investment that is driving stronger demand for process control across its core markets. Foundry/logic and memory trends remain supportive, with leading-edge activity and HBM-led DRAM spending underpinning results, while advanced packaging continues to grow nicely as packaging complexity increases. That said, near-term factors are weighing on sentiment, including longer customer lead times and supply constraints that keep 2026 back-half weighted, along with a transitory margin headwind tied to higher DRAM chip costs and mix. With in-line guidance and KLAC's 2026 WFE view constructive but less bullish than LRCX's, the report likely didn't clear the high bar that growth investors were looking for after the stock's strong run. Even so, the longer-term AI and advanced packaging backdrop continues to support the broader growth story.