A month has gone by since the last earnings report for KLA (KLAC). Shares have added about 8% in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is KLA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.
KLAC Q4 Earnings Beat on AI Demand, Revenues Increase Y/Y
KLA reported fiscal fourth-quarter 2026 non-GAAP earnings of $1.05 per share, up 11.7% year over year, and beat the Zacks Consensus Estimate by 5%.
Revenues increased 15.2% year over year to $3.66 billion and beat the consensus mark by 1.32%. Results benefited from AI infrastructure investment, leading-edge foundry/logic demand and rising process control intensity. Advanced packaging process control revenues are now expected to reach about $1.1 billion in calendar 2026.
KLAC Segment Growth Remains Broad-Based
Semiconductor Process Control revenues were $3.26 billion, accounting for 89% of revenues. The segment grew 13% year over year and 6% sequentially, supported by demand for inspection, metrology and related services across advanced logic, memory and packaging applications.
Specialty Semiconductor Process revenues rose 13% year over year to $160 million but declined 3% sequentially.
PCB and Component Inspection revenues surged 56.5% year over year and 44% sequentially to $241.1 million, reflecting stronger demand tied to high-performance computing packages and integration.
KLA Product Mix Highlights Patterning Momentum
Wafer Inspection remained the largest product category, generating $1.78 billion, or 49% of revenues. Sales increased 1% year over year and 2% sequentially.
Patterning revenues jumped 61% year over year and 18% sequentially to $728 million, representing 20% of the top line.
Services revenues advanced 17% year over year and 6% sequentially to $820 million, and accounted for 22% of revenues. Management noted that customers are running tools at high utilization, while the growing installed base and contract-heavy service model support visibility. About 80% of service revenues are contract-based.
KLAC End Markets Reflect Logic Leadership
Foundry and logic represented 79% of Semiconductor Process Control systems revenues to semiconductor customers. Memory accounted for the remaining 21%, reflecting demand for high-bandwidth memory and increasingly complex DRAM manufacturing processes.
Geographically, Taiwan generated 31% of total revenues, followed by China at 26% and North America at 18%. Korea contributed 10%, Japan 6%, Europe 5% and the Rest of Asia 4%.
KLA Margins Expand With Operating Leverage
The non-GAAP gross margin was 62.4%, at the upper end of guidance. A favorable service mix and manufacturing scale offset higher memory component costs and tariff pressures. Non-GAAP operating margin reached 43.7%, while incremental operating margin was 59%.
Non-GAAP operating expenses totaled $682 million, including $399 million in research and development (up 13% year over year) and $291.5 million in selling, general and administrative expenses (up 11% year over year).
KLAC Cash Flow Supports Shareholder Returns
KLAC ended the quarter with $4.90 billion in cash, cash equivalents and marketable securities and $5.89 billion in debt.
Cash flow from operations was $906 million, while free cash flow totaled $817 million. The company returned $876 million to shareholders during the quarter, comprising $571 million in share repurchases and $305 million in dividends.
Over the past 12 months, capital returns totaled $3.3 billion, while the free cash flow margin was 28%.
KLA Issues Strong First-Quarter Outlook
For the first quarter of fiscal 2027, KLA expects revenues of $4 billion (plus or minus $200 million). Non-GAAP diluted earnings are projected at $1.16 per share (plus or minus 10 cents), while non-GAAP gross margin is forecast at 62.5% (plus or minus 1 percentage point).
Foundry/logic is expected to account for about 73% of Semiconductor Process Control systems revenues to semiconductor customers, with memory at roughly 27%. Within memory, DRAM is projected at about 90% and NAND at 10%. Non-GAAP operating expenses are anticipated to be approximately $690 million.
KLA expects second-half calendar 2026 revenues to rise about 20% from the first half as supply capacity improves. Management also raised its calendar 2026 wafer fabrication equipment market outlook, including advanced packaging, to the low-$150 billion range and expects significant growth to continue in calendar 2027.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a upward trend in estimates revision.
VGM Scores
At this time, KLA has a subpar Growth Score of D, a score with the same score on the momentum front. Following the exact same course, the stock has a score of D on the value side, putting it in the bottom 40% for value investors.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise KLA has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).