KLA (KLAC) Plummets 4.18% Amid Regulatory Scrutiny and Sector-Wide Turbulence

Summary
• Morgan Stanley raises KLAC price target to $1,214 but maintains Equal-Weight rating
• KLAC trades at $1,194.005, down from intraday high of $1,239.65
• Options activity reveals $210,980 in bullish call trades and $166,695 in bearish put trades
• Sector-wide jitters over Intel’s use of sanctioned Chinese tools intensify

KLAC’s 4.18% intraday plunge reflects a perfect storm of regulatory uncertainty, sector-specific risks, and divergent institutional sentiment. With the stock trading near its 52-week low of $551.33 and a dynamic P/E of 34.99, the move underscores fragile investor confidence. The semiconductor equipment sector faces mounting pressure as Intel’s controversial tool testing with ACM Research sparks national security debates, compounding KLAC’s near-term challenges.

Regulatory Fears and Sector-Wide Turbulence Drive KLAC’s Selloff
KLAC’s sharp decline stems from two converging forces: 1) Intel’s testing of tools from ACM Research, a firm with sanctioned Chinese ties, has reignited regulatory scrutiny over semiconductor supply chains, and 2) sector-wide profit-taking after Morgan Stanley’s revised 2026 WFE forecast of $129B (11% YoY growth) failed to offset near-term risks. The latter update, while bullish for long-term growth, highlighted cyclical headwinds as KLAC’s 52-week high of $1,284.47 remains unchallenged. Meanwhile, the ACM-Intel controversy has amplified fears of geopolitical disruptions, with China hawks warning of potential sabotage risks and U.S. lawmakers pushing to bar Chinese equipment in government-backed projects.

Semiconductor Equipment Sector Under Pressure as ASML Slides 3.44%
The semiconductor equipment sector is broadly underperforming, with ASML (ASML) down 3.44% as AI-driven demand for EUV lithography faces regulatory headwinds. KLAC’s -4.18% drop outpaces the sector’s average, reflecting its unique exposure to process control tools critical for advanced nodes. While ASML’s decline signals broader industry caution, KLAC’s selloff is exacerbated by its role in enabling foundries like TSMC and Samsung, which are now under closer scrutiny for potential supply chain vulnerabilities.

Bearish Setup Emerges: Key Levels and High-Leverage Options to Watch
• 200-day average: $907.20 (well below current price)
• RSI: 86.24 (overbought territory)
• MACD: 23.25 (bullish divergence fading)
• Bollinger Bands: Price at 1194.005, near lower band (1082.32)
• Support/Resistance: 30D support at 1132.89, 200D support at 884.57

KLAC’s technicals signal a bearish reversal. The RSI’s overbought reading and MACD’s flattening histogram suggest exhaustion after a 13% QoQ revenue surge. Short-term traders should monitor the 1132.89 support level; a break below 1082.32 would validate a deeper correction. The KLAC20260515C1220 call option (strike: $1,220, exp: 2026-05-15) stands out with a 239,476% leverage ratio and 0.0082 delta, offering aggressive upside if the stock rebounds. However, its 0.00% turnover and 0.23% implied volatility make it illiquid. A safer play is the KLAC20260515P1220 put (strike: $1,220, exp: 2026-05-15), which offers 0.0082 delta and 0.0123 gamma for directional bets. Both contracts are speculative, but the put’s theta decay (-0.002387) and gamma suggest potential for rapid premium erosion if the stock stabilizes. Aggressive bears may consider shorting KLAC20260515P1220 into a breakdown below $1,132.89.

Backtest KLA Stock Performance
The backtest of KLAC's performance after a -4% intraday plunge from 2022 to the present reveals favorable short-to-medium-term gains. The 3-Day win rate is 57.89%, the 10-Day win rate is 60.75%, and the 30-Day win rate is 62.28%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest was 9.94% over 30 days, suggesting that KLAC has the potential for recovery and even exceed pre-plunge levels.

Act Now: KLAC Faces Critical Support Test as Sector Volatility Peaks
KLAC’s 4.18% drop reflects a fragile balance between long-term growth in AI-driven wafer fab equipment and near-term regulatory risks. With ASML down 3.44% and sector-wide profit-taking intensifying, investors must watch for a breakdown below $1,132.89 or a rebound above $1,220. The KLAC20260515P1220 put offers a high-leverage bearish play, but liquidity constraints remain a hurdle. For now, the 52-week low of $551.33 looms as a psychological floor, but a sustained move below $1,082.32 would signal deeper distress. Position sizing and stop-loss placement are critical in this volatile environment.