KLA Corporation (KLAC, Financial) saw a modest rise of 2% today after surpassing its Q4 earnings and revenue estimates, marking a return to sequential and year-over-year growth. The semiconductor equipment supplier also provided optimistic Q1 guidance, with midpoints of its adjusted EPS and sales targets exceeding consensus. This positive outlook was notable given recent bearish forecasts from peers ASML (ASML, Financial) and NXP Semi (NXPI, Financial) due to weaknesses in certain end markets.
Why isn't KLAC's stock moving significantly higher? Despite broader market weakness, KLAC had already surged to all-time highs weeks before its Q4 report, climbing as much as 43% from April lows. This pre-earnings rally had already priced in much of KLAC's Q2 strength.
However, it wouldn't be surprising if KLAC eventually moves back toward record highs. The recent sell-off was largely due to sector rotation rather than any significant issues in end-market demand. Q4 results and management's commentary highlighted accelerating AI demand, with KLAC raising its CY24 annualized AI-related revenue estimate to over $500 million from approximately $400 million.
- KLAC's adjusted EPS beat was wider in Q4 compared to Q3, supported by a 9.1% year-over-year revenue growth to $2.57 billion. The company observed signs of a strengthening market environment, with new technologies and increased capital intensity driving growth in foundry/logic, and AI investments and an improving supply/demand environment boosting memory.
- KLAC remains excited about AI, noting that AI adoption is driving higher volume wafer manufacturing, more complex designs, and growing advanced packaging demands. Management expects these AI-induced tailwinds, along with a broader market recovery, to intensify, leading to significant growth in 2025.
- Despite these positive trends, the near-term market is still stabilizing. KLAC kept its wafer fab equipment (WFE) outlook mostly unchanged in the mid-$90 billion range, with a stronger back half of 2024. The company also projected relatively conservative Q1 numbers, expecting adjusted EPS of $6.40-7.60 and revenues of $2.60-2.90 billion.
The main takeaway from Q2 is that KLAC remains optimistic about a recovery in 2025. Despite concerns following results from ASML and NXPI, KLAC's stock held up well, suggesting confidence in its future prospects. While today's response is muted, there's still plenty of upside for KLAC as long as AI demand remains strong.
