Needham analysts upgraded KLA Corporation (NASDAQ:KLAC) from Hold to Buy, setting a price target of $750 on the stock. The change reflects confidence in KLA’s ability to navigate industry headwinds and capitalize on technology-driven growth opportunities.
KLA has a proven track record of outperforming during challenging times, as semiconductor capital equipment customers prioritize technology upgrades over capacity expansions in uncertain conditions. The company’s focus on advanced node technologies positions it to gain a competitive edge over peers in the coming two years.
Furthermore, the analysts mentioned that KLA’s industry-leading service business is projected to achieve long-term growth of 12-14% annually, bolstered by a strong service backlog built during the robust 2021-2024 wafer fabrication equipment (WFE) upcycle. This backlog is expected to sustain low double-digit growth in service revenues, supporting overall growth even in a flat WFE market.
While prior concerns centered on KLA’s significant exposure to China and overly optimistic projections for the region in 2025, recent developments have mitigated these risks. Over the past three months, KLA revised its 2025 China outlook, incorporating a $500 million impact from December 2024 export controls. The company has also halted certain shipments to China, resulting in an anticipated reduction of China exposure to 25% by the fourth quarter of 2024. These proactive measures have positioned KLA as the only major semicap player with a thoroughly de-risked China strategy.
Despite some sell-side analysts not fully reflecting KLA’s $500 million adjustment in their forecasts, buy-side expectations now appear more aligned with the company’s outlook, according to Needham.