"Both revenue and profit exceeded expectations, so why did chip equipment manufacturer KLA fall? | Earnings Watch"

Chip equipment manufacturer KLA Corporation's second-quarter results exceeded expectations across the board, but the stock price fell after the earnings release as the market was disappointed with the company's future guidance.

On January 29, KLA announced revenue of $3.3 billion and adjusted earnings per share of $8.85 for the second quarter of fiscal year 2026, ending December 31, 2025, both exceeding market expectations.

However, KLA's guidance for the third quarter failed to meet market expectations. The company's third-quarter guidance indicates expected revenue of $3.35 billion, plus or minus $150 million. Non-GAAP diluted earnings per share are expected to be $9.08, plus or minus $0.78.

This guidance did not meet market expectations for accelerated growth. The growth rate is relatively mild and does not reflect the strong acceleration expected to be driven by artificial intelligence. As a result, KLA's stock price fell in after-hours trading.

Second Quarter Results Fully Exceed Expectations

In the second quarter of fiscal 2026, ending December 31, 2025, KLA's total revenue reached $3.297 billion, up 7.2% from $3.077 billion in the same period last year.

Product revenue was $2.511 billion, service revenue was $786 million. GAAP diluted earnings per share were $8.68, and non-GAAP diluted earnings per share were $8.85, both outperforming market expectations.

KLA CEO Rick Wallace said, "KLA achieved record highs in full-year 2025 revenue, non-GAAP operating profit, and free cash flow. This is due to our differentiated product portfolio and the company’s leading-edge processes in foundry and memory."

Future Guidance Raises Market Concerns

The company’s guidance for the third quarter indicates expected revenue of $3.35 billion, plus or minus $150 million. Non-GAAP diluted earnings per share are estimated at $9.08, plus or minus $0.78.

Yet this guidance did not meet the market’s expectations for accelerated growth. Although the midpoint of the guidance range is above expectations, the growth is relatively mild, failing to show the strong acceleration driven by artificial intelligence.

According to Investing.com, this guidance is seen as a "mixed outlook" by the market, meaning some indicators differ from expectations and it is hard to form a consensus for upward revision.

Given that valuations and expectations were already crowded prior to and after the earnings announcement, any signal of "no obvious upward revision" may trigger short-term capital rebalancing, resulting in a post-earnings decline.

Industry Demand Remains but Growth Slows

KLA’s performance reflects the overall state of the semiconductor equipment industry. According to Reuters, strong demand for chipmaking tools drove the company’s better-than-expected performance this quarter, showing that wafer fab customers are still actively investing in advanced process equipment.

However, although demand for chips continues to be driven by artificial intelligence and high-performance computing applications, the pace of equipment purchasing may fluctuate. This is the main reason why investors are concerned about the stock’s prospects.

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