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KLAC Stock is a Risky Bet on Multiple Headwinds: Should You Stay Away?
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KLA Corporation’s (KLAC - Free Report) shares have declined 23.1% in the past six months, underperforming the broader Zacks Computer & Technology sector’s appreciation of 1.5%.
KLA is facing challenges in its PCB and Component Inspection segment. In the first quarter of fiscal 2025, revenues from this segment saw a modest year-over-year increase of 1.4% but declined 1% sequentially.
The company is navigating risks associated with export controls and geopolitical tensions, particularly related to its operations in China. China's revenue contribution is expected to drop from 42% to approximately 30% in 2025, highlighting increasing challenges in this market.
Due to these challenges, KLAC has underperformed its industry peers, such as Flex (FLEX - Free Report) , Garmin (GRMN - Free Report) and Carrier Global (CARR - Free Report) . Over the same period, shares of Flex, Garmin and Carrier Global have gained 37.1%, 29.3% and 7.6%, respectively. However, it has outperformed the Zacks Electronics - Miscellaneous Products industry’s decline of 38.2%.
KLAC is making significant investments in its growth initiatives and the development of new products to strengthen the company’s position in the semiconductor industry. These efforts focus on advancing technologies in wafer inspection, advanced packaging solutions and AI-driven tools, ensuring the company remains competitive in an evolving market.
However, these investments have led to higher operating expenses, impacting profitability. Increased spending on research and development and selling, general, and administrative costs has put pressure on margins. In the most recent quarter, operating expenses rose to $560 million, further impacting the company’s profitability.
KLAC's gross margin was 61.2% in the first quarter of fiscal 2025, slightly below the midpoint of the guided range. This was due to a weaker-than-expected mix of systems products, which impacted overall profitability.
KLA faces uncertainty around capital spending, and while there is demand, it doesn't align with the markets the company serves. Its increasing ties to memory makers, like Micron and Toshiba, aren't yet significant enough to make a big impact.
Earnings Estimates for KLAC Show Downward Trend
The Zacks Consensus Estimate for third-quarter fiscal 2025 non-GAAP earnings is pegged at $7.63 per share, down 0.9% over the past 30 days. The figure indicates 45.06% year-over-year growth but implies 1.3% sequential decline from second-quarter fiscal 2025’s estimate of $7.73 per share.
The consensus mark for fiscal 2025 earnings is pegged at $30.37 per share, down 0.8% over the past 30 days, indicating a 27.93% increase compared with fiscal 2024 earnings.
KLA has a long history of reporting strong quarterly performance, with earnings surpassing the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.02%.
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KLAC Stock is a Risky Bet on Multiple Headwinds: Should You Stay Away?
KLA Corporation’s (KLAC - Free Report) shares have declined 23.1% in the past six months, underperforming the broader Zacks Computer & Technology sector’s appreciation of 1.5%.
KLA is facing challenges in its PCB and Component Inspection segment. In the first quarter of fiscal 2025, revenues from this segment saw a modest year-over-year increase of 1.4% but declined 1% sequentially.
The company is navigating risks associated with export controls and geopolitical tensions, particularly related to its operations in China. China's revenue contribution is expected to drop from 42% to approximately 30% in 2025, highlighting increasing challenges in this market.
Due to these challenges, KLAC has underperformed its industry peers, such as Flex (FLEX - Free Report) , Garmin (GRMN - Free Report) and Carrier Global (CARR - Free Report) . Over the same period, shares of Flex, Garmin and Carrier Global have gained 37.1%, 29.3% and 7.6%, respectively. However, it has outperformed the Zacks Electronics - Miscellaneous Products industry’s decline of 38.2%.
KLA Corporation Price and Consensus
KLA Corporation price-consensus-chart | KLA Corporation Quote
KLAC's Margins Hit by Increased Spending
KLAC is making significant investments in its growth initiatives and the development of new products to strengthen the company’s position in the semiconductor industry. These efforts focus on advancing technologies in wafer inspection, advanced packaging solutions and AI-driven tools, ensuring the company remains competitive in an evolving market.
However, these investments have led to higher operating expenses, impacting profitability. Increased spending on research and development and selling, general, and administrative costs has put pressure on margins. In the most recent quarter, operating expenses rose to $560 million, further impacting the company’s profitability.
KLAC's gross margin was 61.2% in the first quarter of fiscal 2025, slightly below the midpoint of the guided range. This was due to a weaker-than-expected mix of systems products, which impacted overall profitability.
KLA faces uncertainty around capital spending, and while there is demand, it doesn't align with the markets the company serves. Its increasing ties to memory makers, like Micron and Toshiba, aren't yet significant enough to make a big impact.
Earnings Estimates for KLAC Show Downward Trend
The Zacks Consensus Estimate for third-quarter fiscal 2025 non-GAAP earnings is pegged at $7.63 per share, down 0.9% over the past 30 days. The figure indicates 45.06% year-over-year growth but implies 1.3% sequential decline from second-quarter fiscal 2025’s estimate of $7.73 per share.
The consensus mark for fiscal 2025 earnings is pegged at $30.37 per share, down 0.8% over the past 30 days, indicating a 27.93% increase compared with fiscal 2024 earnings.
KLA has a long history of reporting strong quarterly performance, with earnings surpassing the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.02%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
KLAC’s Zacks Rank
KLAC currently has a Zacks Rank #4 (Sell), which implies that investors should stay away from the stock for the time being.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.