KLA Stock Jumps 40% Year to Date: 4 Reasons You Should Still Buy It

KLA KLAC shares have jumped 40% year to date (YTD), outperforming the broader Zacks Computer and Technology sector’s return of 18.5%. The outperformance can be attributed to rising AI-related process-control intensity, rapid advanced-packaging expansion, strong backlog visibility and industry-leading profitability as well as a capital-return model. 

However, the company’s shares have underperformed its peers, including Entegris ENTG, Lam Research LRCX and MKS MKSI, YTD. Lam Research, Entegris and MKS shares have returned 61%, 52.5% and 49.7% over the same time frame, respectively. KLAC has suffered 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.

So, what should investors do with KLAC shares? Let’s find out.

KLAC Stock’s Price Performance

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4 Reasons Why KLAC is a Buy

AI-driven semiconductor complexity is expanding KLA’s process-control opportunity. AI infrastructure requires more advanced logic, high-bandwidth memory (HBM) and complex packaging, all of which increase the need for inspection and metrology. The company noted that larger dies, 2-nanometer gate-all-around architectures, EUV and stacked HBM raise defect-management challenges and therefore process-control intensity. KLA believes these trends increase its relevance both during technology ramps and in high-volume production.

KLA expects advanced-packaging process-control revenues to reach roughly $1.1 billion in calendar 2026, up more than 70% year over year, nearly twice the growth rate of the broader advanced-packaging market. The company’s market share has also risen from only a couple of percent around 2023 to an estimated 7-8% in 2026, while hybrid bonding and more front-end-like packaging processes could expand the addressable opportunity further.

Meanwhile, KLA’s backlog stood at about $12.6 billion, up roughly 60% from fiscal 2025, while the company said the order funnel remains strong. Customer shipment visibility extends through 2027 and, in some cases, into early 2028. Orders generally cover a 12-18 month delivery window, providing investors with better visibility into future revenues despite the industry's cyclicality.

KLA generated record fourth-quarter fiscal 2026 revenues of $3.66 billion, with a 62.4% gross margin, 43.7% operating margin and 59% incremental operating margin. The company produced $817 million of free cash flow during the reported quarter and returned $876 million through buybacks and dividends. The company’s long-term model calls for roughly 13-17% revenue CAGR through 2030, 45-47% operating margins and more than 90% of free cash flow returned to shareholders.

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 60 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 fiscal 2026.

KLA Shares Trade at a 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 11.92X, higher than the broader sector’s 6.05X. KLAC shares are trading at a premium compared with MKS, Entegris, and Lam Research, shares of which are trading at 2.80X, 5.06X, and 9.58X, respectively.

KLAC Stock’s Valuation

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Conclusion

KLA’s strong YTD rally reflects solid fundamentals, supported by rising AI-driven process-control intensity, accelerating advanced packaging demand and strong customer spending across leading-edge logic and memory. The company’s sizable backlog provides healthy revenue visibility, while robust free cash flow generation and disciplined capital returns add to the investment appeal. Encouragingly, upward earnings estimate revisions suggest improving expectations for fiscal 2027. Although KLAC’s premium valuation and near-term margin pressure from higher memory costs and tariffs warrant attention, its technology leadership, expanding addressable market and strong long-term growth outlook support further upside. 

KLA currently has a Zacks Rank #2 (Buy), which implies investors should buy the stock right now. 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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