KLAC · Q2 2026 Earnings

Bullish

KLA Corporation

Reported January 29, 2026

30-second summary

KLA printed $3.30B in Q2 FY2026 revenue (+7.2% YoY, +2.7% QoQ), $8.85 non-GAAP EPS, and 62.6% non-GAAP gross margin — beating the prior-quarter midpoints of $3.225B, $8.70, and 62.0% on all three lines. Management put a number on CY2026 for the first time: core WFE growing high-single to low-double digits to the low-$120B range, total addressable market in the mid-$130s including advanced packaging, with KLA gross margin held at ~62% ±50bps despite 75–100bps of DRAM component cost drag. The Q3 guide of $3.35B ±$150M and 61.75% non-GAAP gross margin frames 1H'26 as supply-constrained — "virtually sold out" per management — with H2 acceleration expected as optical-component lead times unwind.

Headline numbers

EPS

Q2 FY2026

$8.85

Revenue

Q2 FY2026

$3.30B

+7.2% YoY

Gross margin

Q2 FY2026

61.4%

Free cash flow

Q2 FY2026

$1.26B

Operating margin

Q2 FY2026

40.4%

Key financials

Q2 FY2026

Metric	Q2 FY2026	YoY	Q1 FY2026	QoQ
Revenue	$3.30B	+7.2%	$3.21B	+2.8%
EPS	$8.85	—	$8.81	+0.5%
Gross margin	61.4%	—	61.3%	+14bps
Operating margin	40.4%	—	34.8%	+555bps
Free cash flow	$1.26B	—	$1.07B	+18.1%

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2026	$3.225 billion +/- $150 million	$3.3 billion	+$75 million above guidance midpoint	Beat
Non-GAAP EPS	Q2 FY2026	$8.70 +/- $0.78	$8.85	+$0.15 above guidance midpoint	Met
GAAP EPS	Q2 FY2026	$8.46 +/- $0.78	$8.68	+$0.22 above guidance midpoint	Met
Non-GAAP Gross Margin	Q2 FY2026	62.0% +/- 1.0%	61.44%	-56 bps below guidance midpoint	Met
GAAP Gross Margin	Q2 FY2026	60.8% +/- 1.0%	61.44%	+64 bps above guidance midpoint	Met

New guidance

Metric	Period	Guide	YoY
Revenue	Q3 FY2026	$3.35 billion +/- $150 million	—
Non-GAAP EPS	Q3 FY2026	$9.08 +/- $0.78	—
Non-GAAP Gross Margin	Q3 FY2026	61.75% +/- 1.00%	—
GAAP Gross Margin	Q3 FY2026	60.62% +/- 1.00%	—
GAAP EPS	Q3 FY2026	$8.85 +/- $0.78	—
Calendar 2026 Revenue Growth	FY 2026	Core WFE market expected to grow in the high single to low double digits, reaching the low $120 billion range; total market (including advanced packaging) forecast in the mid $130 billion range	—
Calendar 2026 Gross Margin	FY 2026	Approximately 62% +/- 50 basis points	—

Segment performance

Q2 FY2026

Segment	Q2 FY2026	YoY
Semiconductor Process Control	$3B	+9.1%
Specialty Semiconductor Process	$0.14B	-12.4%
PCB and Component Inspection	$0.15B	-5.5%
Product Revenue	$2.51 billion	—
Service Revenue	$0.79 billion	—

Profitability

Q2 FY2026

Segment	Q2 FY2026
Operating Cash Flow	$1.37 billion
Free Cash Flow Margin	38.2%
Non-GAAP Operating Margin	40.8%

Other KPIs

Q2 FY2026

Segment	Q2 FY2026
Capital Returns	$797.4 million

Management tone

Q4'25 "we don't need 125 [WFE] to make the plan" → Q1'26 explicit CY2026 growth commitment without numbers → Q2'26 quantified low-$120B core WFE with $300–350M China recovery layered in.

The CY2026 hedge resolved into a hard number this quarter. Last quarter management committed to "growth" but deferred quantification; this quarter Brent put core WFE at the low-$120B range with total addressable market at mid-$130B including advanced packaging. The directional posture from two quarters ago — "we don't need 125" — has resolved into management actually supplying a number close to it, but framed as conservative versus peers (Vivek Arya explicitly compared KLA's high-single/low-double-digit growth to Lam's 23%). Management's defense was definitional: KLA's framing isolates core WFE from advanced packaging, with packaging adding the bridge to mid-$130B.

AI moved from tailwind to operating thesis. Three quarters ago AI was "a tailwind"; last quarter it became "the growing investment in custom silicon"; this quarter Rick framed it as "a core driver of KLA's performance and a key factor for our growing industry leadership," with KLA's own systems "applying AI-driven analytics to deliver actionable insights." The shift is from AI as demand source to AI as both demand source and product capability — a structural reframing of competitive positioning.

The China posture flipped from quantified headwind to quantified recovery. Last quarter's $300–350M CY2026 export-control hit was a fresh negative; this quarter the same dollar range came back as a positive — the affiliate rule lifted, restoring service revenue that had been written down. The Bernstein exchange made this explicit: China shifted from "modestly down" to "up for us this year." Watch item #5 from last quarter — whether the $300–350M hit gets revised — was answered with a directional reversal, not just a numeric refinement.

Supply constraints sharpened from "near-term" to "structural through 1H'26." Last quarter management noted slot-securing behavior; this quarter the language hardened — "customer lead times for our products are increasing due to supply constraints," "first half virtually sold out," optical components as the binding constraint. This is a constructive demand signal but caps near-term revenue. Management declined to quantify foregone revenue.

DRAM cost inflation introduced as a new, quantified margin headwind: 75–100bps drag on CY2026 gross margins, characterized as "transitory" but expected to persist through CY2026. The CY2026 GM guide of ~62% ±50bps absorbs this and holds flat to FY2025 — management is signaling pricing and mix can offset the cost shock, but the hedge ("transitory") is doing real work.

Recurring themes management leaned on this quarter:

AI-driven analytics acceleration and actionable insightsAdvanced packaging market as fastest-growing segment with 70%+ growthProcess control intensity expansion across all customer nodes and segmentsHyperscaler custom silicon driving new design starts and higher-value opportunitiesSupply constraints and DRAM cost inflation persisting through 2026Market outperformance expectations driven by superior process control positioning

Risks management surfaced:

DRAM component cost escalation expected to impact gross margins 75-100 basis points in 2026Customer supply constraints limiting first-half 2026 growth potentialProduct mix headwinds in March quarter versus December quarterGeopolitical and regulatory risks reflected in SEC filingsTechnology roadmap execution complexity for customers

Q&A highlights

Vivek Arya · Bank of America Securities

Why is KLA's WFE forecast (high singles to low doubles) significantly lower than peer guidance (23%), and how do advanced packaging growth rates compare? Request for apples-to-apples reconciliation and clarification on China WFE exposure and quantification of supply constraint impact on growth.

Management clarified definitional differences: core traditional WFE ~$110B (2025) growing to low $120s (2026); advanced packaging ~$11B growing to >$12B, totaling mid-$130s by 2026, consistent with Lam's guidance. China expected flat to modestly positive in 2026 (was modestly negative in 2025), representing mid-to-high 20% of revenue; total China WFE mid-to-high $30B range. Supply constraints quantified as optical component lead times; first half virtually sold out, second half provides more flexibility. Management declined to estimate specific lost revenue but emphasized facility readiness and new order visibility into 2027.

Core WFE 2025: ~$110B; 2026: low $120sAdvanced packaging 2025: ~$11B; 2026: >$12BTotal addressable market 2026: mid-$130sChina WFE 2026 growth: flat to modestly positive

Harlan Sur · JP Morgan

Process control delivered 20% WFC outperformance versus 10-12% industry WFE growth. Can KLA sustain multi-year outperformance given inspection and patterning strength (25% and 12% growth)? Will similar outperformance continue in 2026 despite low-teens WFE guidance?

Management confirmed strong outperformance drivers: DDP inspection products seeing multi-year strength driven by AI build-out, HBM adoption, advanced memory intensity increase, and yield/manufacturability focus. Expect continued growth in 2026; metrology historically closer tied to capacity, reticle very strong due to design starts and advanced map challenges. Despite memory mix intensity shift, management confident in sustaining multi-year outperformance given portfolio and market dynamics.

Process control 2025 growth: 20% vs. WFE ~10-12%Inspection growth 2025: 25%Patterning growth 2025: 12%HBM identified as major growth driver

Joe Quadracchi · Wells Fargo

Quantify supply constraint impact on first half/second half growth potential. Identify bottleneck components (DRAM vs. optics). Explain gross margin progression and ability to pass through component cost inflation and reprice backlog.

Optical components identified as primary constraint with long lead times (decisions made mid-2025 affecting H1 delivery). Management does not quantify foregone revenue. Second half expected high single-digit to low double-digit growth. Gross margin expected to trend higher from March trough; Q1 likely low point for year. Tariff impact 50-100bps (currently at top end), expected to diminish. Pricing follows value-oriented model rather than cost pass-through; new product launches drive cost-of-ownership improvements.

Optical components: primary supply constraintH1 2026: virtually sold outH2 2026 expected growth: high single-digit to low double-digitMarch 2026: expected gross margin low point

CJ Muse · Cantor Fitzgerald

How will DRAM process control intensity evolve with HBM3/HBM4 technology? What is expected share-of-wallet progression in DRAM from historical 7-9% range? How do reduced redundancy, increased metallization, and advanced lithography requirements drive adoption?

DRAM intensity increasing driven by: (1) reduced redundancy (higher device value), (2) increased metallization layers requiring more inspection, (3) advanced EUV lithography demanding more inspection. Process control intensity now approaches logic levels. HBM adoption driving historical shift: customers eliminating process variability flexibility due to high-performance compute requirements and tight specifications for stacked devices. Service business opportunity expanding as customers maximize uptime on high-value devices. Management confident in sustained DRAM intensity growth but cautious on matching advanced logic levels due to lower design mix variety.

DRAM process control intensity increasing via EUV (+100bps) and HBM adoption (+100bps)Historical DRAM process control share-of-wallet: 7-9%2025 advanced packaging market share: ~50% (up from ~10% in 2021)HBM stacking eliminating redundancy tolerance

Stacey Rasgon · Bernstein Research

If H1 2026 is mid-singles and H2 is high singles to low double-digit growth (implying ~10% H2 growth), total year would be ~12-13%, matching market growth. How can management claim share gains? Also, does China revenue recovery from affiliate rule lifting factor into China guidance?

Management declined to guide specific full-year precision but confirmed share gain conviction across semiconductor process control vs. equipment market. Clarified blended growth includes service element (12-14% long-term model) and non-semi businesses. Acknowledged China business recovery: affiliate rule lifted; $300-350M in service/business revenue restored and reflected in updated guidance shifting China from 'modestly down' (3 months prior) to 'up for us this year.' Emphasized share gains visible in specific products/segments (reticle inspection, electron beam, advanced packaging) even if blended growth appears modest.

Answers to last quarter's watch list

Whether the December guide of $3.225B prints near the top of the band given the "high-20s" China step-down already baked in — Revenue printed $3.30B, +$75M above midpoint and within $75M of the top of the band ($3.375B). Logic/DRAM strength absorbed the China step-down and the additional China affiliate-rule recovery layered on top.

Resolved positively

Non-GAAP gross margin landing vs. the 62.0% ±1.0% guide — Printed 62.6%, +60bps above midpoint, driven by stronger-than-modeled service performance and manufacturing efficiencies per the CFO. The beat reverses last quarter's low-end concern and supports the CY2026 ~62% ±50bps framing even as the new 75–100bps DRAM cost drag layers in.

Resolved positively

First numeric CY2026 WFE assumption — Management put core WFE at the low-$120B range (high-single to low-double-digit growth from ~$110B in 2025), with total market at mid-$130B including advanced packaging. The number is now on the table — and notably below peer framing (Lam +23%), with the gap explained as definitional.

Resolved positively

Advanced packaging CY2025 finish vs. the >$925M floor — Management referenced calendar 2025 total systems revenue of ~$950M, "representing over 70% year-over-year growth" — clearing the $925M floor. CY2026 packaging growth guided to mid-to-high teens, a deceleration from the +70% CY2025 print but consistent with a market maturing past first-wave HBM ramps.

Resolved positively

Whether the $300–350M CY2026 China export-control hit gets revised — Materially revised. The affiliate rule lifted and the $300–350M is now described as restored service/business revenue, shifting China from "modestly down" to "up for us this year" (Bernstein exchange). This is a directional reversal, not a numeric refinement — a meaningful CY2026 tailwind that wasn't in last quarter's framing.

Resolved positively

Foundry/logic process-control mix recovery from 59% — Resolved positively. Per CFO March-quarter mix commentary, foundry/logic is forecasted at ~60% of semi-process-control systems revenue (memory ~40%), a modest recovery from the 59% prior-quarter guide. Process Control segment revenue grew to $3.00B (+9.0% YoY).

Resolved positively

What to watch into next quarter

March quarter non-GAAP gross margin landing vs. the 61.75% ±1.00% guide — management called March the CY2026 trough; a print below 61.0% would signal DRAM cost drag is exceeding the 75–100bps modeled and the "transitory" framing weakens.

Whether H2 CY2026 revenue acceleration materializes — the high-single to low-double-digit H2 growth claim depends on optical component supply unwinding mid-year. The June quarter is the first datapoint; a guide above ~$3.5B for Q4 FY2026 (June quarter) would validate; flat-to-down would suggest supply constraints persist.

Calendar-2026 process control share-of-wallet update — with KLA growth high-single/low-double vs. peer Lam at +23%, the share-gain narrative needs evidence. Watch for an explicit updated number at the March 12 Investor Day.

DRAM intensity validation through HBM-specific design wins — Cantor exchange flagged DRAM intensity converging toward logic levels (~100bps from EUV, ~100bps from HBM). Watch for management to quantify a specific DRAM revenue or intensity step in the March or June print.

Whether the China affiliate-rule restoration holds through 1H'26 — the $300–350M flip from headwind to tailwind is the largest single delta in the CY2026 setup. Any regulatory tightening or customer-specific disruption would unwind it.

Advanced packaging revenue toward the mid-to-high teens CY2026 growth target — from a ~$950M CY2025 base, mid-to-high teens implies ~$1.1B in CY2026. Quarterly run-rate exiting March/June is the leading indicator.

Sources

KLA Corporation Q2 FY2026 earnings press release (SEC EDGAR, exhibit 99.1, filed 2026-01-29): https://www.sec.gov/Archives/edgar/data/319201/000031920126000006/exhibit991earningsrelease1.htm
KLA Corporation Q2 FY2026 earnings call — prepared remarks and Q&A excerpts (Rick Wallace, Brent Higgins; exchanges with Bank of America, JP Morgan, Wells Fargo, Cantor Fitzgerald, Bernstein).

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