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Investing.com -- Wells Fargo downgraded KLA Corporation to Equal Weight from Overweight on Tuesday, highlighting valuation concerns and a lack of clear upside drivers to already optimistic 2026 forecasts.
In a note to clients, the analysts said, “We d/g KLA from OW to EW as shares have significantly outperformed the group / SOX (+45% YTD vs. SOX +11%) & trade well above its median P/E at ~26x.”
Wells Fargo (NYSE:WFC) expects KLA to outperform the wafer fab equipment (WFE) market overall, but questioned its ability to deliver further upside.
“We struggle with the drivers required to deliver further 2026 upside to our already above-Street est,” the note said, adding that investor focus has now shifted to 2026, where the growth outlook is “highly debated.”
The bank lowered its overall 2026 WFE forecast to $110 billion, down from $116 billion previously.
“The most significant change in our forecast is the reduction in leading edge F/L,” the analysts wrote. “We now estimate +14% y/y (vs. prior +28% y/y) driven by TSMC 2nm + 3nm AZ pull-ins as it appears 2026 will be another transition year for Intel (NASDAQ:INTC) / Samsung (KS:005930).”
Despite KLA’s strong position in advanced packaging and its exposure to 2nm nodes, Wells Fargo called the stock “a crowded long” and said shares “require upside to flattish 2H25 vs. 1H25 outlook.”
Among peers, Wells Fargo ranked investor sentiment ahead of earnings as follows: KLA, LRCX, ASML (AS:ASML), and AMAT.
KLA was still viewed as “the most defensive in group,” but the analysts cautioned that growth headwinds and valuation risk could weigh on the stock’s performance heading into 2026.