KLA Rides on Strong Advanced Packaging Growth: More Upside Ahead?

KLA KLAC is benefiting from the rapid adoption of advanced packaging, which has become a key enabler of AI infrastructure. As AI processors become more complex, the requirement for advanced packaging technologies such as chiplets, 2.5D/3D integration and hybrid bonding is increasing rapidly. These technologies require significantly higher process control intensity, creating strong demand for KLA’s inspection, metrology and yield-management solutions. 

Advanced packaging roadmaps are increasingly adopting sophisticated wafer front-end manufacturing techniques, requiring more front-end process control capabilities, according to KLA management. Driven by the industry’s most comprehensive process control portfolio, KLA expects its Advanced Packaging process control systems revenue to reach approximately $1.1 billion in calendar 2026. This represents more than 70% year-over-year growth, well above KLAC’s previous expectation of high-50% growth and nearly twice the growth rate of the advanced packaging market.

Beyond its core Semiconductor Process Control business, advanced packaging is also driving growth in KLA’s Specialty Process, PCB and Component Inspection businesses. High-performance computing packages and increasingly complex AI chip packaging are boosting demand for these products. KLA expects these combined businesses to grow more than 25% in calendar 2026, reflecting the benefits of the Orbotech acquisition.

KLA sees advanced packaging as a long-term growth engine. The company raised its outlook for the wafer equipment market, including advanced packaging, to approximately the low-$150 billion range in calendar 2026 (up from prior expectation of more than $140 billion) and continues to expect significant industry growth in calendar 2027, driven by investments across leading-edge logic, DRAM, HBM, NAND and advanced packaging capacity. KLAC expects technologies such as hybrid bonding, together with AI computing, HBM and EUV adoption, to increase process control intensity across the semiconductor ecosystem. This will support accelerating revenue growth in the second half of 2026 and continued momentum into 2027.

Tough Competition Hurts KLAC’s Prospects

KLAC is facing stiff competition from the likes of Onto Innovation ONTO and Applied Materials AMAT, both of which are well known for their advanced packaging process control offerings.

Onto Innovation’s expanding inspection and metrology portfolio for AI-driven packaging applications is a key catalyst. ONTO expects advanced packaging revenues to grow more than 50% in 2026, supported by qualification of its Dragonfly G5 inspection platform at a leading 2.5D logic customer, growing adoption of its 3DI metrology systems for shrinking micro-bump inspection and JetStep lithography wins for panel-level packaging. Onto Innovation also highlighted a pipeline of more than 15 applications across over 10 customers, positioning it to gain market share in both existing and new packaging applications.

Applied Materials’ advanced packaging technology portfolio extends beyond process control into deposition, etch, hybrid bonding and packaging integration. AMAT expects advanced packaging revenue to increase more than 50% in calendar 2026, driven by AI-related demand for high-bandwidth memory (HBM) and 3D chiplet architectures. Applied Materials has invested heavily in hybrid bonding, panel-level packaging, glass substrates and packaging inspection technologies, including the planned NEXX acquisition and X-ray capabilities, while emphasizing leadership in HBM packaging equipment.

KLAC’s Share Price Performance, Valuation & Estimates

KLAC shares have jumped 40% year to date, outperforming the broader Zacks Computer and Technology sector’s return of 8.9%.

KLAC Stock’s Performance

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KLA stock is overvalued, with a forward 12-month price/sales of 12.68X compared with the broader sector’s 6.13X. KLAC has a Value Score of F.

KLAC Valuation

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The Zacks Consensus Estimate for fiscal 2027 earnings is pegged at $5.07 per share, up 2.5% over the past 30 days, suggesting 34.84% 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.

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

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