KLA Gains From Advanced Packaging: Can it Outpace ONTO & AMAT?

KLA KLAC is benefiting from accelerating demand for advanced packaging as AI and high-performance computing (HPC) chips require increasingly complex integration of logic and memory. Rising package complexity, higher performance requirements and growing chip values are increasing the need for inspection, metrology and process-control tools. KLA stated that the increasing complexity and value of semiconductor packages, particularly for AI and HPC applications, is driving significant growth in its advanced packaging business. The company’s strong portfolio is strengthening competitive prowess against Onto Innovation ONTO and Applied Materials AMAT.

The momentum is already translating into strong revenue growth. KLA expects advanced packaging process-control systems revenues to reach approximately $1.1 billion in calendar 2026, representing growth of more than 70% year over year. The company attributed the expansion to rising process-control intensity as chip designs become more complex and performance specifications become more demanding. Technology transitions such as hybrid bonding are creating additional opportunities. Along with HPC and High-Bandwidth Memory (HBM) adoption, advanced packaging technologies like hybrid bonding are increasing the number of inspection and measurement steps required during manufacturing, supporting demand for KLA's tools. 

KLA’s broad portfolio allows the company to capture spending across multiple stages of advanced packaging. KLAC’s wafer inspection and metrology systems help manufacturers detect and monitor defects and process excursions in wafer-level packaging, while chemistry process-control systems monitor materials used in wafer-level and panel-level packaging and IC substrates. Advanced packaging is also benefiting businesses beyond KLA’s core Semiconductor Process Control operations. HPC packaging and integration are driving demand within its Specialty Process and PCB and Component Inspection businesses, with these combined products expected to grow more than 25% in calendar 2026.

Tough Competition Hurts KLAC’s Prospects

Onto Innovation and Applied Materials are well known for their advanced packaging process control offerings.

Onto is emerging as a particularly strong challenger in packaging inspection and metrology. The company raised its 2026 advanced packaging growth outlook to approximately 80%, up from 50% previously, driven by strong demand from HBM manufacturers and outsourced semiconductor assembly and test (OSAT) customers. Onto secured more than $200 million of Dragonfly orders from a single OSAT, with most shipments scheduled for 2027. The company’s Dragonfly inspection business grew 30% sequentially in the second quarter of 2026, supported by 2.5D logic and HBM applications.

Applied Materials is increasingly challenging KLA in process diagnostics and control. Applied Materials expects this business to grow more than 50% in 2026, supported by greater use of e-beam metrology and inspection for increasingly complex structures and new optical-inspection products aimed at gaining application share. Moreover, its EPIC co-innovation strategy gives Applied deeper access to customers developing future chip and packaging architectures, potentially allowing it to secure process-control positions earlier in the technology-development cycle.

KLAC’s Share Price Performance, Valuation & Estimates

KLAC shares have jumped 50.9% year to date, outperforming the broader Zacks Computer and Technology sector’s return of 15.4%.

KLAC Stock’s Performance

Image Source: Zacks Investment Research

KLA stock is overvalued, with a forward 12-month price/sales of 13.05X compared with the broader sector’s 6.32X. KLAC has a Value Score of D.

KLAC Valuation

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for fiscal 2027 earnings is pegged at $5.43 per share, up 7.1% over the past 30 days, suggesting 44.41% growth from the figure reported in fiscal 2026.

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

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research