KLA Technologies (KLAC) presented its 2026 growth outlook at Citi’s Global Technology, Media and Telecommunications Conference, highlighting a robust backlog, expanding market share in advanced packaging, and strategic investments in artificial intelligence. The company’s backlog, valued at just under $12.6 billion, represents a 60% year-over-year increase from fiscal 2025, reflecting sustained demand for its semiconductor equipment. Revenue growth is projected to reach the low-20% range in 2026, following a 17% increase in 2025 and a 12% rise in 2024. This trajectory underscores KLA’s ability to capitalize on the expanding wafer fab equipment market, which Citi revised to a mid-$150 billion range for 2026, up from its March estimate of $135 billion to $140 billion. A potential upside scenario envisions a $290 billion market by 2028.
The company’s services business is expected to grow 13% to 15% annually, with 80% of that segment contract-based. KLA’s focus on advanced packaging has driven revenue growth of 70% year-over-year, with its market share rising to 7% to 8% in 2026, up from a couple of percent in 2023. Higher-end tools account for about 20% of its total sales in this segment. Operating margins have expanded by 400 basis points over the 2024–2026 period, with incremental operating margin targets set at 40% to 50% and incremental gross margins targeted at 60% to 65%. Overall gross margins sit in the low 62% range, with systems gross margins around 70%. A 100-basis-point headwind from memory-related costs has widened slightly from earlier estimates.
Supply constraints remain a key challenge, particularly for optical components like calcium fluoride, which have intrinsic lead times of 18 to 24 months or more. Multi-year capacity planning with optics suppliers extends into 2029 and 2030. KLA’s shift toward AI-driven tools, introduced in 2018 and 2019, aligns with broader industry trends toward automation and process control intensification. The company’s transition to 2-nanometer nodes and gate-all-around structures has increased process control demands due to higher defect densities and larger die sizes. High-bandwidth memory (HBM) applications, with their larger dies and reduced redundancy, are also driving adjustments in stack configurations.
KLA’s financial model reflects strong execution, with operating margins tracking toward the upper end of its incremental model. The company’s second-half 2026 revenue is expected to be about 20% higher than the first half, reflecting sustained demand across its product lines. The outlook also includes a planned groundbreaking and grand opening in Singapore later this year, led by Executive Vice President and CFO Bren Higgins, as part of its expansion strategy.
The company’s technology tool mix has shifted toward optical solutions, now accounting for 85% or higher of its offerings, up from an historical 80/20 split. This shift supports its growth in advanced packaging, where higher-end tools represent a significant portion of its revenue. KLA’s long-term strategy remains focused on driving innovation, operational efficiency, and market leadership in the semiconductor equipment space.
