KLA Corporation (KLAC +3%) exceeded earnings and sales forecasts in Q2, driven by accelerating AI demand. The company expects continued growth in Q3, projecting EPS and revenue above consensus for the first time in two years.

• KLAC reported an adjusted EPS of $8.20 in Q2, a 33% year-over-year increase. The company achieved gross margins of 61% in 2024, surpassing peers like ASML (ASML, Financial) and Lam Research (LRCX, Financial) by over 10 points. Revenue grew by 23.7% year-over-year to $3.08 billion, up from 18.5% in Q1, driven by investments in AI, high-performance computing, and advanced packaging.
• New U.S. export controls impacted Q2, with KLAC estimating a $400-600 million revenue hit in 2025 due to reduced sales in China. KLAC expects China's revenue contribution to drop from 41% to 27-31% in 2025.
• Global AI demand remains a key driver for KLAC. The company highlighted DeepSeek's AI performance, supporting the view that higher compute efficiency boosts AI adoption. KLAC expects continued strong demand.
• Investments in AI and high bandwidth memory are set to drive growth in the wafer fab equipment (WFE) industry in 2025. KLAC aligns its WFE spending forecast with LRCX, projecting modest growth from the mid-$90 billion in 2024. KLAC anticipates Q3 adjusted EPS of $7.45-8.65 and revenue of $2.85-3.15 billion, a 27% year-over-year improvement at the midpoint.

KLAC's Q2 results were similar to those of peers ASML and LRCX, resulting in a modest share price increase of about 5% over the past two days. However, KLAC's greater exposure to China, coupled with potential trade restrictions, may cause investor caution despite its strong AI prospects.

With AI opportunities expanding, KLAC is well-positioned to capitalize on drivers like complex designs, faster product cycles, and increased demand for advanced packaging.