Morgan Stanley resets KLA Corp stock forecast

KLA Corporation (KLAC) has become one of Wall Street’s more closely watched semiconductor-equipment names as investors look for companies tied to the buildout of artificial intelligence infrastructure.

The company makes process-control and process-enabling tools used in semiconductor manufacturing, including equipment that helps chipmakers improve yields and detect production issues.

Morgan Stanley analyst Shane Brett raised the firm’s price target on KLA Corp. to $1,900 from $1,809 and kept an Overweight rating on the shares after the company’s latest earnings report.

The note, shared with TheStreet, offered investors a more balanced view than the higher target alone suggested, saying KLA Corp.’s earnings provided “something for both bulls and bears,” with a stronger 2027 growth outlook offset by continued 2026 underperformance.

KLA Corp.’s earnings support the long-term case

KLA Corporation reported fiscal third-quarter revenue of $3.415 billion for the period ended March 31, above the midpoint of its prior guidance range of $3.35 billion, plus or minus $150 million.

The company also reported GAAP diluted earnings of $9.12 per share and non-GAAP diluted earnings of $9.40 per share, both above the midpoints of its guidance ranges.

The company’s outlook also came in slightly ahead of Wall Street estimates. KLA Corp. guided for fiscal fourth-quarter revenue of $3.575 billion, plus or minus $200 million, and non-GAAP diluted earnings of $9.87 per share, plus or minus $1.00, while Reuters reported that analysts expected revenue of $3.54 billion and adjusted earnings of $9.80 per share, according to LSEG data.

KLA Corporation also used the quarter to expand its capital-return plans. The company said its board approved a quarterly dividend increase to $2.30 per share beginning with the dividend expected to be declared in May 2026, along with an additional $7 billion authorization for stock repurchases.

The stock still fell nearly 9% in extended trading after the report, according to Reuters. That reaction showed how high expectations have become for semiconductor-equipment companies tied to AI demand, especially after KLA Corp. shares had gained about 50% this year as of Wednesday’s close.

AI demand remains the biggest support

KLA Corp.’s role in semiconductor manufacturing gives investors a different way to look at the AI buildout. The company’s tools are used to find and fix microscopic defects during the chipmaking process, while its services business provides maintenance and optimization for equipment already installed at customer sites.

The company said in its latest quarterly filing that long-term demand drivers include the adoption of extreme ultraviolet lithography in high-volume manufacturing for logic and DRAM memory, including high-bandwidth memory. Those manufacturing shifts create new process-control requirements, which can support growth in key markets for KLA Corp.

KLA Corp.’s recent revenue growth showed the same trend. Total revenue increased 11% from the year-earlier quarter, primarily due to higher product revenue tied to increased investments from memory customers, particularly DRAM led by high-bandwidth memory, along with steady growth in foundry and logic.

That is the part of the story Morgan Stanley appears more willing to underwrite. The firm’s higher target suggests the analyst is looking beyond a weaker 2026 setup and putting more weight on the possibility of stronger growth in 2027.

China remains a key risk for KLA Corp.

KLA Corporation still has one of its biggest near-term risks tied to China, which has been a major revenue source for U.S. semiconductor-equipment companies. The company said customers in China generated $3.09 billion of revenue for the first nine months of fiscal 2026, representing 31.2% of total revenue, down from 34.3% in the same period a year earlier.

The company said revenue from customers in China increased 5% in the March quarter and by less than 1% over the first nine months of fiscal 2026 compared with the prior-year periods. KLA Corp. said continued legacy-node demand was partly offset by the effects of U.S. export controls and regulations.

Those restrictions remain difficult for investors to model. KLA Corp. said Commerce Department rules have affected its ability to sell certain products and provide certain services to certain customers in China, and the company warned that additional restrictions could disrupt shipments, revenue recognition, business operations, and customer support in the region.

KLA Corp. also said failure to obtain export licenses has harmed and could continue to harm backlog, including by requiring the company to return substantial deposits received from customers in China. The company added that future revenue from China as a percentage of overall revenue may decline as a result of current and future Commerce rules and regulations.