KLA Corporation (NASDAQ:KLAC) ended Friday at $231.52, a modest 0.9% gain, but the stock continues to underperform its semiconductor equipment peers. Stifel maintained its Buy rating and $270 price target on the company, yet the shares closed 1.7% below their July 2 level and sit 23.3% lower than where they traded on June 30. That decline is notably steeper than that of other major U.S. chip-equipment makers, raising questions about what is driving the disparity.
The underperformance comes even as demand forecasts remain robust. Meta Platforms (NASDAQ:META) is set to move its Iris AI chip into production in September, with plans to double computing power to 14 gigawatts by 2027 and potentially spend up to $145 billion on AI infrastructure this year. Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) will manufacture the chip. "You can't become an AI titan if you are dependent on another company for chips," said Mike Gualtieri of Forrester in a Reuters report.
KLA specializes in process-control systems—the inspection and measurement equipment that chipmakers use to detect defects and maintain production efficiency. The recent lag appears less about softening demand and more about investors trimming expectations. That theory will be tested next week when several key data points and corporate reports are released.
A comparison of recent performance highlights KLA's divergence. While Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) had nearly recovered to their July 2 closes by Friday, KLA remained well behind. The PHLX Semiconductor Index rose 2.7% from July 2 to July 10, while KLA fell 1.7% over the same period. Since June 30, KLA is down 23.3%, compared to declines of 16.7% for Applied Materials, 19.2% for Lam Research, and a 9.0% drop for the chip index. Baird investment-strategy analyst Ross Mayfield noted it is "still very much an AI bull market," but warned that oil prices and interest rates could disrupt a broader rally, as reported by Reuters.
Recent target raises offer some upside but not enough to offset the recent losses. Stifel set a $270 target, implying a 16.6% gain from Friday's close. TD Cowen's Krish Sankar raised his target to $260, representing a 12.3% upside. Neither figure fully compensates for the 23.3% decline since June 30. Stifel's forecast for KLA's process-control systems revenue stands at $2.5 billion for the quarter, up 6.4% sequentially, suggesting equipment demand is strengthening beyond just service-related gains.
KLA reported fiscal third-quarter revenue of $3.415 billion, up 11.5% year-over-year. The company guided for June-quarter revenue of approximately $3.575 billion at the midpoint. CEO Rick Wallace stated, "Our business momentum remains robust," according to an SEC filing.
Despite these positives, the market is demanding more evidence from KLA compared to its peers. The 4.4-point lag versus the chip index is a key metric traders are watching. Downside risks are clear: KLA has acknowledged that government export restrictions have hurt its backlog and could slow its China business, which accounted for 33% of fiscal 2025 revenue. Tighter rules would reduce orders and service revenue. Weak spending from TSMC or higher U.S. inflation would add further pressure across the equipment sector.
TSMC is scheduled to release its delayed June sales figures on Monday and report second-quarter results on Thursday. The company has forecast revenue between $39.0 billion and $40.2 billion, with gross margin guidance of 65.5% to 67.5%. The U.S. consumer price index (CPI) will be released Tuesday at 8:30 a.m. ET, followed by the producer price index (PPI) on Wednesday and retail sales on Thursday at the same time.
KLA will report its fiscal fourth-quarter numbers on July 28 after the market close. Until then, TSMC's sales and spending updates will serve as the key external check. If KLA shares continue to lag the chip index and equipment peers despite steady demand, valuation and investor positioning may be more important than the order cycle in determining near-term performance.
