Why KLA's Stock Crashed Today
Key Points
KLA's stock fell 11.5% despite beating analyst estimates for both revenue and earnings.
The stock had gained 140% in the prior year, setting a high bar for earnings perfection.
KLA's core products face little competition, which should support the company's long-term growth.
- 10 stocks we like better than KLA ›
Shares of KLA Corporation (NASDAQ: KLAC) were down 11.5% as of this writing, near 11:00 a.m. ET on Friday. The maker of equipment used to manufacture semiconductors reported second-quarter earnings last night. Investors were not impressed, even though the results exceeded Wall Street's consensus projections.
The numbers looked great on paper
The average analyst firm had expected adjusted earnings of roughly $8.80 per share on revenue near $3.25 billion. Sales rose 7.1% year over year to $3.30 billion, while earnings jumped 41% to $8.85 per diluted share. Looking ahead, the midpoints of management's guidance ranges for the next quarter were slightly above the current Street view.
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But investors shrugged off the rosy results to focus on KLA's challenges instead. On the earnings call, CFO Bren Higgins warned that equipment delivery lead times are longer than usual due to component shortages. Tariff expenses are also weighing on the bottom line, and the company has difficulty keeping up with strong demand for memory-chip manufacturing tools.
Before this report, KLA's stock had gained 140% in 52 weeks. Anything less than a perfect report can result in a sell-off after a run like that.
Image source: Getty Images.
KLA's moat isn't going anywhere
Component shortages may delay KLA's sales but are unlikely to cause permanent damage to its revenue stream.
Like fellow chip-making equipment builders ASML Holding (NASDAQ: ASML) and LAM Research (NASDAQ: LRCX), KLA offers several key products that have no serious alternatives, especially in the high-end part of the market. As long as chip foundries need leading-edge tools, KLA and friends should see robust business growth over time.
In other words, this crash might just be the market catching its breath after a 140% sprint. It's more of a profit-taking retreat than a disappointing earnings report.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Lam Research. The Motley Fool has a disclosure policy.
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