Advanced Packaging Boom Propels KLA to 96% Annual Surge—Can the Rally Continue?

The Momentum Behind KLA’s Impressive Run

KLA Corporation has delivered remarkable returns over the past year, with shares climbing 96.2%—a performance that leaves most of its peers in the dust. The semiconductor equipment specialist has significantly outpaced the broader computer and technology sector’s 24.6% return, as well as the electronics-miscellaneous products industry’s 22.3% appreciation. When stacked against direct competitors, KLA’s outperformance becomes even more striking: Applied Materials returned 28.78%, Teradyne delivered 58.2%, and Axcelis Technologies posted 20.8% gains. Only Teradyne came remotely close to matching KLA’s trajectory, yet KLAC still claimed the top spot in sector leadership.

What’s Driving KLA’s Dominance?

The engine behind this surge is multifaceted. KLA controls a commanding share of the process control market—the critical inspection and metrology systems that chipmakers rely on to maintain yields and manage complexity. But the real catalyst is the explosive demand for advanced packaging solutions. These aren’t just incremental improvements; they represent a fundamental shift in how chips are designed and manufactured, enabling heterogeneous integration where different chip types stack together to boost performance and efficiency.

Advanced packaging revenues alone are projected to exceed $925 million in 2025, representing roughly 70% growth from 2024. The market itself, valued at $11 billion currently, is growing faster than traditional wafer fabrication equipment (WFE), creating a expanding TAM for KLA to capture. With hyperscalers and chip designers increasingly developing custom silicon for AI workloads and specialized tasks, the need for sophisticated process control has become non-negotiable.

High-bandwidth memory (HBM) adoption is another critical piece of this puzzle. As AI infrastructure investments accelerate, HBM demand is reshaping semiconductor manufacturing priorities—and KLA is positioned as the essential tool to make it all work.

The Valuation Question

Here’s where it gets tricky. KLAC trades at a forward 12-month P/E of 35.02X, significantly above the broader sector’s 27.66X valuation. Applied Materials trades at 28.78X, while Axcelis is even cheaper at 19.57X. Only Teradyne surpasses KLAC’s multiple at 43.04X. This premium suggests the market is pricing in substantial future growth—but it also leaves less room for disappointment.

From a technical perspective, KLA is solidly positioned above both its 50-day and 200-day moving averages, confirming a strong uptrend despite the elevated valuation.

Financial Firepower and Capital Allocation

KLA’s balance sheet provides confidence in its ability to execute. The company ended Q1 fiscal 2026 with $4.7 billion in cash and equivalents against $5.9 billion in debt—a manageable structure with flexible bond maturities. More impressively, operating cash flow hit $1.16 billion in the quarter, translating to $1.07 billion in free cash flow.

Management isn’t sitting idle. In Q1 alone, KLA repurchased $545 million in shares and distributed $254 million in dividends, signaling confidence in the business while returning capital to shareholders.

What the Numbers Say About the Future

Consensus expectations paint an optimistic picture. Analysts peg fiscal 2026 earnings at $35.44 per share—a modest tick up over the past month—implying 6.5% earnings growth versus 2025. Revenue guidance sits at $13.04 billion, suggesting 7.3% top-line expansion.

Breaking it down quarterly: Q2 fiscal 2026 earnings are expected at $8.75 per share (up 6.7% year-over-year), while Q3 revenues are forecasted at $3.24 billion (up 5.4% YoY). These aren’t stratospheric growth rates, but they’re solid given KLA’s already substantial scale.

The Bigger Picture: Why KLA’s Growth Runway Extends Further

Here’s what separates KLA from a typical mature equipment supplier: the advanced packaging market is expected to grow more than 20% in 2025 alone, while HBM is positioned to outpace overall logic and foundry growth in 2026. This structural tailwind is crucial because KLA doesn’t just benefit from total WFE growth; it gains disproportionately from process control intensity requirements.

The company has guided to meaningfully outperforming the mid-to-high single-digit WFE growth rates consensus expects in 2025. Over the long term, KLA targets 40-50% incremental non-GAAP operating margin leverage on revenue growth—a powerful profit multiplier if execution delivers.

The Verdict

KLA’s 96% annual surge isn’t a result of hype alone—it reflects genuine structural tailwinds in advanced packaging, HBM proliferation, and custom silicon development. The company’s fortress balance sheet, strong free cash generation, and market leadership in process control create a durable competitive moat. Yes, the valuation reflects optimism, but the earnings growth trajectory and market dynamics suggest there’s still runway ahead. Whether that means another 50% climb or a consolidation phase depends on execution and broader industry cycles, but the fundamental case remains compelling for investors with conviction in chip manufacturing’s next chapter.