Morgan Stanley Upgrades KLA to Overweight, Targets 18% Gain

Morgan Stanley has upgraded its rating for KLA Corporation (KLAC.US) to "overweight," reflecting a bullish outlook on the company's prospects in the wafer fabrication equipment (WFE) market. The investment bank has raised its target price for KLA from $748 to $870, citing expectations of robust revenue growth for the company in the coming years. Morgan Stanley anticipates that KLA's revenue will grow by 8% in 2025 and 12% in 2026, outpacing the overall WFE market, which is projected to decline by 3% in 2025 and grow by only 4% in 2026. This optimistic view is underpinned by KLA's strong performance over the past 12 months, during which the company has demonstrated significant revenue growth.

KLA's strategic investments in research and development, coupled with its innovative product offerings, have enabled the company to stay ahead of the competition. The company's focus on delivering high-quality solutions that meet the evolving needs of semiconductor manufacturers has been a key driver of its success. As the industry continues to evolve, KLA's commitment to innovation and excellence positions it well to maintain its leadership position in the WFE market.

Morgan Stanley's confidence in KLA is driven by two primary factors. Firstly, the firm believes that process control intensity is a critical factor. As chip sizes increase and the number of design starts rises, process control intensity is expected to experience structural growth. These factors are likely to result in yield declines, necessitating more of KLA's services. Evidence supporting this view can be seen in KLA's share of capital expenditures at Taiwan Semiconductor Manufacturing Company (TSMC) and its growing influence in the memory sector.

Secondly, KLA's market share in the process control segment is expected to increase. Morgan Stanley believes that KLA's leading position in technological advancements, combined with its foundational technology and data processing capabilities, will enable it to continue gaining market share. These advantages are seen as key factors in strengthening KLA's competitive moat in the industry.

In addition to Morgan Stanley's upgrade, another major investment bank has also expressed a positive outlook on KLA. The bank has maintained its "buy" rating for the company and raised its target price. The analysts highlight that the extended product development cycles in the semiconductor industry are increasing the attachment rate for WFE equipment, which bodes well for KLA's future performance. This convergence of positive sentiment from major investment banks underscores the confidence in KLA's ability to outperform the broader WFE market.