KLA Drops 9% in a Month: Should You Buy the Stock on the Dip?

KLA KLAC shares dropped 9.3% in the past month, underperforming the broader Zacks Computer and Technology sector’s return of 1.4%. The underperformance can be attributed to investor concerns around near-term margins, execution risks and elevated expectations. The company expects higher memory-component costs and tariffs to keep gross margin under pressure, with memory pricing pressure likely to persist through 2027. Shortages in certain long-lead-time components as well as rising execution risk related to KLAC’s capacity expansion initiatives to meet high demand are concerns. KLA also faces significant geopolitical and regulatory uncertainty related to China, tariffs and broader trade restrictions.

The company’s shares have underperformed its peers, including Entegris ENTG and Lam Research LRCX, but outperformed MKS MKSI over the past month. Entegris shares have returned 14.5% over the same time frame while Lam Research and MKS dropped 4.7% and 13.5%, respectively. So, what should investors do with KLAC shares? Let’s find out.

KLAC Stock’s Price Performance

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KLA Shares Trade at Premium

KLAC shares are trading at a premium, as suggested by the Value Score of D. 

In terms of the forward 12-month price/sales, KLAC is trading at 14.92X, higher than the broader sector’s 6.55X. KLAC shares are trading at a premium compared with MKS, Entegris, and Lam Research, shares of which are trading at 3.77X, 6.41X, and 11.76X, respectively.

KLAC Stock’s Valuation

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KLAC’s Prospects Ride on Strong AI Demand

KLA’s growth outlook remains strong for the remainder of calendar 2026 and into 2027, supported primarily by accelerating AI infrastructure spending, leading-edge foundry/logic investment, high-bandwidth memory (HBM) adoption and advanced packaging. The company expects second-half calendar 2026 revenues to grow approximately 20% from the first half as additional supply capacity becomes available, while its September-quarter (first-quarter fiscal 2027) revenue guidance of $4 billion (plus or minus $200 million) at the midpoint implies another meaningful sequential increase. 

Advanced packaging is emerging as a strong contributor, with KLA forecasting approximately $1.1 billion of process-control systems revenue in calendar 2026, up more than 70% year over year (which increases from prior guidance of high 50% growth). Specialty Process and PCB/Component Inspection businesses are expected to grow more than 25%. Services business is expected to provide another source of momentum as higher system shipments enlarge the installed base. In the fourth quarter of fiscal 2026, Services revenues increased 17% year over year to $820 million. The company also sees broad-based investment across leading-edge logic, DRAM, HBM, NAND and new greenfield fabs supporting significant growth in 2027.

KLA should benefit from structurally rising process-control intensity as semiconductor devices become more complex and valuable. Faster product cycles, more stringent performance specifications, greater design variability, higher-value wafers and masks, increased EUV adoption, HBM and advanced packaging all require more inspection, metrology and yield-management capability.

KLA’s 2030 framework assumes the process-control market will grow faster than overall wafer-fabrication equipment, supported by intensity and market-share gains at the leading edge, advanced packaging and a greater than 150-basis-point increase in KLA’s share of WFE. The company targets revenues of about $26 billion (plus or minus $2.5 billion) by 2030, representing an estimated 13-17% CAGR, while Services is expected to grow 13-15%.

KLAC’s Earnings Estimate Revision Shows Rising Trend

The Zacks Consensus Estimate for first-quarter fiscal 2027 revenues is currently pegged at $4.03 billion, suggesting 25.42% growth from the figure reported in the year-ago quarter. The consensus mark for earnings is currently pegged at $1.17 per share, up four cents over the past 30 days. The figure suggests 32.95% growth from the figure reported in the year-ago quarter.
 

The Zacks Consensus Estimate for fiscal 2027 revenues is currently pegged at $17.85 billion, suggesting 31.46% growth from the figure reported in fiscal 2026. The consensus mark for earnings is currently pegged at $5.43 per share, up 7.7% over the past 30 days. The figure suggests 44.41% growth from the figure reported in fiscal 2026.

Conclusion

KLA’s recent share-price weakness appears to offer a potentially attractive entry point for investors willing to look beyond near-term margin and supply-chain pressures. The company is benefiting from strong AI-driven semiconductor spending, rising process-control intensity, expanding HBM and advanced-packaging adoption, and a growing services base. Encouragingly, earnings estimates for both the fiscal first quarter and fiscal 2027 have moved higher, reinforcing confidence in the company’s growth trajectory. Although KLAC’s premium valuation warrants some caution, its market leadership, improving demand visibility and ambitious 2030 growth targets support a favorable long-term outlook. Investors may consider using the recent pullback as an opportunity to accumulate the stock for its compelling growth prospects.

KLA currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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