KLAC: AI And DRAM Spending Cycles Will Drive Balanced Risk Reward Ahead

Analysts have nudged their average price target for KLA higher by about $10 to roughly $1,297 per share, citing stronger than expected recent results, rising confidence in the company’s dominant position in process control for AI driven chip transitions, and a healthier long term DRAM and wafer fab equipment outlook, even as they trim margin assumptions slightly.

Analyst Commentary

Street research remains broadly constructive on KLA, with several recent target hikes and an upgrade reflecting rising conviction in the company’s role as a key beneficiary of AI driven wafer fab investment, even as some caution persists around cycle timing and already elevated expectations.

Bullish Takeaways

• Bullish analysts highlight KLA’s dominant position in process control, arguing that inspection and metrology intensity should structurally rise with each new technology node and AI related transition, supporting above market growth and a premium valuation multiple.
• Stronger than expected recent results and in line near term guidance are seen as evidence of solid execution, with management dispelling concerns around remaining performance obligations and DRAM demand, which supports confidence in out year earnings power.
• Improving signs of DRAM fab investment and early AI compute related orders are viewed as positive leading indicators for a robust 2026 to 2027 wafer fab equipment upcycle, underpinning target prices that now cluster around or above the $1,200 to $1,300 range.
• Bullish analysts also point to KLA’s relatively lower exposure to China restrictions versus peers, suggesting the company is better insulated from geopolitical shocks, which could justify sustained premium pricing on the shares.

Bearish Takeaways

• Bearish analysts note that after a sharp rerating, KLA’s valuation already discounts a strong multiyear recovery, leaving less margin for error if wafer fab equipment or DRAM capex in 2026 falls short of current high expectations.
• There is concern that while AI driven demand is robust, it may not fully offset potential volatility in broader PC and handset markets, creating risk to growth assumptions embedded in the higher price targets.
• Some observers remain cautious on the macro and policy backdrop, flagging that tariff or localization measures and shifting supply chains could disrupt customer spending plans and introduce execution risk for complex global deployments.
• Incremental upside to margins is viewed as more limited from here, with modestly trimmed assumptions implying that future share price gains may need to come predominantly from sustained revenue outperformance rather than further operating leverage.

What's in the News

• The board approves amendments to KLA's by-laws to tighten disclosure requirements for shareholder director nominations and proposals, and to align governance provisions on directors, officers, and stock with current market practice (company filing).
• KLA reports progress on its June 2022 share repurchase program, buying back 622,500 shares for $559.62 million in the latest quarter, bringing total repurchases to 18,399,343 shares, or about 13.05% of shares outstanding, for $8.53 billion (company filing).
• Management issues guidance for the quarter ending December 31, 2025, forecasting revenue of approximately $3.225 billion, plus or minus $150 million, and GAAP diluted EPS of $8.46, plus or minus $0.78 (company guidance).

Valuation Changes

• Fair Value has risen slightly, increasing from approximately $1,287.27 to $1,296.89 per share.
• Discount Rate has inched higher, moving from about 10.55% to 10.59%, which implies a marginally higher required return.
• Revenue Growth assumptions have risen modestly, from roughly 8.55% to 8.69% annually.
• Net Profit Margin expectations have edged down slightly, from about 36.12% to 35.96%.
• Future P/E multiple has increased slightly, from around 38.17x to 38.52x forward earnings.