KLA sees $140B chip equipment market as greenfield fabs drive growth

KLA Corp. expects wafer fabrication equipment spending to exceed $140 billion this year, with greenfield fab investments across logic and memory extending the cycle into 2027 and boosting demand for process control tools.

"I've been the CFO here since 2013, and I can't recall this level of visibility into the next year in the early May timeframe," Bren Higgins, chief financial officer at KLA, said at J.P. Morgan's 54th annual Global Technology, Media and Communications Conference.

The company reported fiscal third-quarter revenue of $3.42 billion, up 11 percent from a year earlier, with semiconductor process control sales climbing 13 percent to $3.08 billion. Adjusted earnings rose to $9.40 a share from $8.41. Higgins said second-half revenue could run in the "mid-to-high teens, maybe 20 percent" above the first half as supply catches up with customer demand.

KLA's outlook signals that the semiconductor equipment upcycle has room to run, driven by AI infrastructure demand for advanced logic, high-bandwidth memory and complex packaging. The company expects 2027 wafer fabrication equipment growth to outpace 2026 — a rare multi-year visibility window that could support KLA's 2030 target of $26 billion in revenue and $84 in earnings per share.

Greenfield Fabs Extend the Cycle

KLA's visibility into 2027 is unusually strong because customers are building entirely new fabs — greenfield projects — rather than simply adding capacity at existing sites. Higgins said new fab construction across logic, DRAM and flash is translating into orders, backlog and pressure on lead times. "Everybody wants their tools sooner," he said, adding that customers have returned with revised plans that make previously agreed delivery timelines appear late.

The spending is broad-based. Memory is growing faster this year, with KLA's mix expected at high-60 percent foundry and logic and low-30 percent memory. The second half could see a higher memory contribution, with DRAM potentially exceeding logic in that period.

Advanced Packaging Becomes a Billion-Dollar Business

Advanced packaging has emerged as a major growth driver for KLA. Higgins said the packaging market is now growing in excess of 30 percent, up from the 20 percent the company anticipated in January. KLA's own packaging business is on a path to $1 billion in revenue, implying a growth rate in the high-50 percent range.

The shift reflects a structural change in how chips are made. As line widths and spaces shrink and package integration becomes more complex — particularly for high-performance computing — advanced packaging increasingly requires "front-end-like" inspection solutions. "The last thing a customer wants to do is go through all the integration that goes into integrating one of these very valuable devices, and it doesn't function or doesn't work," Higgins said.

Process Control Intensity Rises With Chip Complexity

KLA benefits from a dynamic that sets it apart from pure equipment makers: process control spending rises not just with wafer volume but with chip complexity. Large, high-value die — common in AI accelerators and custom silicon at 3-nanometer and 2-nanometer nodes — create greater yield risk, pushing customers to spend more on inspection and metrology.

Higgins compared process control spending to insurance, saying customers are willing to pay more to protect higher-value products. Third-party data shows KLA gained about 80 basis points of process control share this year and is roughly 7.5 times larger than its nearest competitor. The company has gained about 360 basis points of share since 2021.

KLA competes with Onto Innovation Inc. in specialty metrology and advanced packaging inspection and with Applied Materials Inc., which leverages a broader semiconductor equipment portfolio spanning deposition, etch and packaging. ASML Holding dominates extreme ultraviolet lithography but operates in a different segment of the manufacturing process.

Services and Shareholder Returns

KLA's services business, where 80 percent of revenue is under contract and renewal rates exceed 90 percent, grew 16 percent in the March quarter. Higgins said service growth this year should align with the company's long-term target of 13 percent to 15 percent. Service revenue over a tool's lifetime now exceeds 100 percent of the tool's average selling price, as tools remain in production for more than 20 years.

The company recently announced a 21 percent dividend increase alongside a $7 billion share repurchase authorization. KLA has raised its dividend annually for 20 years, achieving a compound annual growth rate of roughly 16 percent over that period.

KLA shares trade at a premium to many semiconductor equipment peers, supported by its recurring services revenue and structural tailwinds from rising process control intensity. The company's 2030 target implies roughly 15 percent annual revenue growth against an industry backdrop of about 12 percent. If greenfield fab investments materialize as expected, KLA's process control exposure could deliver multi-year earnings growth that the market has not fully priced in.

This article is for informational purposes only and does not constitute investment advice.