"Revenue + Profit" both exceeded expectations, but why did chip equipment manufacturer KLA decline? | Earnings Report Insights
KLA's second-quarter performance exceeded expectations across the board, but the guidance for next quarter indicates a slowdown in growth. In the context of high valuations and market expectations before the earnings announcement, the cautious guidance for the next quarter triggered short-term profit-taking, resulting in a decline in stock price after the earnings report
Chip equipment manufacturer KLA Corporation's second-quarter performance for fiscal year 2026 significantly exceeded expectations, but its stock price fell after the earnings report due to market disappointment with the company's future performance guidance.
On January 29, KLA announced revenue of $3.3 billion for the second quarter of fiscal year 2026, ending December 31, 2025, with adjusted earnings per share of $8.85, both surpassing market expectations.
However, KLA's guidance for the third quarter did not meet market expectations. The company's third-quarter guidance indicated expected revenue of $3.35 billion, with a fluctuation of $150 million. The non-GAAP diluted earnings per share are expected to be $9.08, with a fluctuation of $0.78.
This guidance failed to meet market expectations for accelerated growth. The growth rate was relatively moderate and did not reflect the strong acceleration driven by artificial intelligence, leading to a decline in KLA's stock price in after-hours trading.
Second Quarter Performance Exceeds Expectations
In the second quarter of fiscal year 2026, ending December 31, 2025, KLA achieved total revenue of $3.297 billion, a 7.2% increase from $3.077 billion in the same period last year.
Product revenue was $2.511 billion, and service revenue was $786 million. GAAP diluted earnings per share were $8.68, and non-GAAP diluted earnings per share were $8.85, both exceeding market expectations.
KLA CEO Rick Wallace stated, "KLA achieved record highs in revenue, non-GAAP operating profit, and free cash flow for the full year of 2025. This is due to our differentiated product portfolio and the company's leading-edge processes in foundry and memory sectors."
Future Guidance Raises Market Concerns
The company's third-quarter guidance indicated expected revenue of $3.35 billion, with a fluctuation of $150 million. Non-GAAP diluted earnings per share are expected to be $9.08, with a fluctuation of $0.78.
However, this guidance did not meet market expectations for accelerated growth. Although the midpoint of the guidance range was above expectations, the growth rate was relatively moderate and did not reflect the strong acceleration driven by artificial intelligence.
According to Investing.com, this guidance was viewed by the market as a "mixed outlook." Some indicators differed from expectations, making it difficult to form a consistent upward revision consensus.
In a situation where valuations and expectations were already crowded before and after the earnings announcement, any signal of "not significantly raised" could trigger a rebalancing of short-term funds, resulting in a decline after the earnings release.
Industry Demand Continues but Growth Rate Slows
KLA's performance reflects the overall condition of the semiconductor equipment industry. According to Reuters, strong demand for chip manufacturing tools drove the company's better-than-expected performance this quarter, indicating that wafer fab customers are still actively investing in advanced process equipment.
However, despite ongoing demand for chips driven by artificial intelligence and high-performance computing applications, the pace of equipment procurement may fluctuate, which is a primary reason investors are concerned about the stock price outlook
