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On Monday, KLA Corporation (NASDAQ:KLAC), a semiconductor equipment giant with an $89.5 billion market cap, received an upgraded stock rating from Morgan Stanley (NYSE:MS), moving from Equalweight to Overweight. Accompanying this upgrade, the firm also increased the price target for KLA’s shares to $870.00, up from the previous target of $748.00. According to InvestingPro data, 21 analysts have recently revised their earnings estimates upward, suggesting growing confidence in the company’s prospects.
The upgrade by Morgan Stanley comes with a positive outlook on KLA’s growth potential within the wafer fabrication equipment (WFE) sector. According to the firm’s analysis, KLA is expected to outperform the WFE market with projected revenue growth of 8% in 2025 and 12% in 2026. These figures stand in contrast to the WFE market forecast, which anticipates a 3% decline in 2025 followed by a 4% increase in 2026. The company has already demonstrated strong momentum with a 12.15% revenue growth in the last twelve months, though current valuations suggest the stock may be trading above its Fair Value.
Morgan Stanley’s confidence in KLA is rooted in two main drivers. Firstly, the firm cites process control intensity as a key factor, which is likely to see a structural increase due to larger die sizes and a rise in design starts. These factors are expected to lead to lower yield, thus requiring more of KLA’s services. Evidence supporting this view can be seen in KLA’s share of capital expenditures from Taiwan Semiconductor Manufacturing Company (TSMC) and its growing presence in the memory sector.
The second driver behind Morgan Stanley’s optimistic stance is KLA’s potential for market share gains in process control. The firm believes that KLA’s position at the forefront of technological inflections, coupled with its fundamental technology and data processing capabilities, will enable it to continue gaining market share. These advantages are seen as key elements that will further strengthen KLA’s competitive moat in the industry.
In other recent news, KLA Corporation reported its fourth-quarter 2024 financial results, exceeding analysts’ expectations with earnings per share (EPS) of $8.20, surpassing the forecasted $7.75, and revenue reaching $3.08 billion, above the anticipated $2.94 billion. Despite these strong results, KLA’s stock saw a minor decline. The company continues to experience growth in AI-related semiconductor technologies, achieving 50 consecutive quarters of growth in its services business. However, export controls are expected to impact sales in China, with a projected 20% drop. Meanwhile, Citi analysts raised their price target for KLA Corporation to $910, maintaining a Buy rating, citing improved product development cycle attach rates to wafer fabrication equipment. The analysts also increased their EPS forecasts for 2025 and 2026 by 13% and 14%, respectively. Lam Research Corporation (NASDAQ:LRCX) introduced two new tools aimed at enhancing AI chip production, positioning itself against competitors like Applied Materials (NASDAQ:AMAT) and ASML (AS:ASML). These developments reflect the ongoing shifts and growth within the semiconductor industry.
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