Semiconductor manufacturing equipment maker KLA Corporation (NASDAQ: KLAC) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 23.6% year on year to $3.17 billion. Guidance for next quarter’s revenue was optimistic at $3.15 billion at the midpoint, 2.8% above analysts’ estimates. Its non-GAAP profit of $9.38 per share was 9.7% above analysts’ consensus estimates.

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StockStory’s Take

KLA Corporation’s second quarter results reflected strong momentum in the semiconductor manufacturing sector, primarily driven by rising demand for advanced process control systems supporting artificial intelligence (AI) infrastructure and high bandwidth memory (HBM). CEO Richard Wallace credited the company’s performance to “increased investments in AI, high-performance computing, and advanced packaging” as well as robust execution within its services segment. Management emphasized that expanded adoption of KLA’s solutions for complex chip designs and advanced logic contributed significantly to the company’s revenue growth.

Looking ahead, KLA’s forward guidance is shaped by continued investment from leading-edge foundry and logic customers, as well as expanding opportunities in advanced packaging technologies. Management highlighted the potential for further market share gains and noted that customer roadmaps remain focused on enabling rapid technology transitions. CFO Bren Higgins cautioned that global tariffs may pressure gross margins, but stated, “We continue to assess the impact across our business and identify potential mitigation actions to reduce our exposure to this headwind over time.”

Key Insights from Management’s Remarks

Management attributed the quarter’s outperformance to strong demand in advanced logic and memory, particularly for AI-related applications, and increasing adoption of process control solutions in advanced packaging.

• AI and HBM demand surge: Management described a significant uptick in customer investment for applications supporting AI and HBM, which require more sophisticated inspection and process control due to larger, more valuable semiconductor die and reduced redundancy in chip designs. This trend has elevated sampling rates and process control intensity across manufacturing lines.

• Advanced packaging momentum: The company raised its advanced packaging revenue outlook for the year, citing strong customer adoption and a growing pipeline of orders. CEO Richard Wallace said that KLA’s portfolio is “gaining share” as new packaging architectures like 2.5D and 3.5D become critical for next-generation AI accelerators and high-performance chips.

• Process control intensity decoupling from lithography: Management highlighted that the historical correlation between process control and lithography intensity is breaking down. The rise of more complex designs and higher design variability at advanced nodes is driving greater need for process control, even as lithography intensity moderates.

• Service business growth: The services segment delivered double-digit year-over-year growth, supported by higher tool utilization and customer requirements for uptime and performance as manufacturing complexity rises. This part of the business has now achieved more than 50 consecutive quarters of year-over-year growth.

• Tariff and margin impacts: Management acknowledged that new global tariffs are creating a headwind for gross margins, estimating a 50 to 100 basis point impact this year. Efforts are underway to mitigate these costs through supply chain adjustments and process optimizations.

Drivers of Future Performance

KLA’s outlook for the coming quarters is underpinned by strong customer demand in AI and advanced packaging, but tempered by tariff-related cost pressures.

• Continued AI infrastructure build-out: Management expects sustained investment from semiconductor customers enabling AI workloads, with demand for high bandwidth memory and advanced logic fueling process control and inspection tool sales. This trend is anticipated to drive KLA’s outperformance relative to broader industry growth rates.

• Margin management amid tariffs: CFO Bren Higgins stated that gross margins are expected to remain stable around 62.5% for the year, despite new tariffs. The company is pursuing mitigation strategies, including leveraging free trade zones and optimizing supply chains, but acknowledges ongoing uncertainty around long-term tariff impacts.

• Advanced packaging revenue acceleration: With adoption of 2.5D and 3.5D packaging architectures in AI chips, KLA expects advanced packaging systems revenue to exceed previous estimates. Management sees this as an early stage of a multi-year growth cycle, with further upside possible as more customers adopt these technologies.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will closely monitor (1) the pace of customer adoption for advanced packaging and inspection solutions, (2) the effectiveness of KLA’s strategies to offset gross margin pressure from tariffs, and (3) ongoing developments in AI-driven semiconductor demand, particularly as new designs and architectures proliferate. We will also watch for updates on KLA’s share gains in process control markets and any changes in end-market or geographic mix.

KLA Corporation currently trades at $936.71, up from $879.57 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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