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Investing.com— Semiconductor equipment stocks spent October under heavy pressure, as heightened export restrictions and cyclical pauses in foundry capital expenditures dragged the sector down 25% to 35%. While the broad sell-off swept up lithography and etching leaders like ASML Holding (NASDAQ:ASML)and Lam Research (NASDAQ:LRCX), it also knocked process diagnostics leader KLA Corporation (NASDAQ:KLAC)down 24.5% over the past month.
Yet treating all equipment suppliers equally ignores a critical manufacturing bottleneck. While chipmakers can temporarily delay purchasing new wafer fabrication tools during cyclical lulls, they cannot bypass the defect inspection and yield management systems KLA provides. As advanced computing shifts toward 2-nanometer nodes and complex 3D packaging, even microscopic wafer defects carry catastrophic financial costs.
Spotting when an essential supplier gets dragged down by a broad sector sell-off is exactly what InvestingPro's ProPicks AI models look for. During the live November 1 rebalance, the system added KLA Corporation to the Tech Titans strategy, pairing it with high-conviction technology leaders—including a specialized foundry chipmaker, an enterprise collaboration software platform, and an essential cloud infrastructure provider.
See the tech picks in the live November update: Explore the Tech Titans strategy on InvestingPro
The inspection step chipmakers cannot skip
KLA supplies the inspection, metrology and data analytics systems that chipmakers such as TSMC and Samsung use to catch defects and manage yield. The Pro Research Report puts its share of semiconductor metrology and inspection at an estimated 50% to 74%, and the switching costs from that integration into customer workflows are high.
Results from the September quarter point to a sector-wide sell-off, with the business itself on firmer ground. Fiscal first-quarter revenue hit a record $4.14 billion, up 29% from a year earlier and ahead of the $4.04 billion analysts expected. Operating margin reached 46.1%, the first time in company history above 46%, on a 62.7% gross margin, and free cash flow was $1.34 billion. Guidance for the December quarter of about $4.7 billion sits well above the roughly $4.49 billion Street estimate.
Backlog reached nearly $13 billion, up about 60% from fiscal 2025, with visibility into 2027 and early 2028. Services revenue added $850 million, up 14%, on a growing installed base. Advanced packaging revenue is on track for about $1.1 billion this calendar year, up more than 70%, and management expects the wafer equipment market to top $200 billion in 2027.
A record quarter set against specific risks
According to consensus analyst projections compiled on InvestingPro, earnings per share are expected to reach $5.46 in fiscal 2027, a 45.3% jump, and $6.65 in fiscal 2028. Over the past 90 days, there have been 19 upward earnings revisions against 3 downward. Citi, Cantor Fitzgerald and Evercore ISI all trimmed price targets after the report, Cantor's to $225 from $325, though each kept a positive rating.
InvestingPro's Financial Health framework, which benchmarks companies across more than 100 indicators, rates KLA "Good," with a Profitability rating of 9 out of 10 and a Piotroski score of 8 behind it.
Memory input costs are a drag of about 100 basis points on gross margin, with relief not expected until mid-to-late 2027 or into 2028. China is set to slip from about 30% of revenue to the low 20s in 2027, supply lead times average about 12 months, and a single weekend of AI-slowdown talk in September knocked 7.8% off the shares in pre-market trading. The stock also still carries a premium earnings multiple.
The KLA Corporation Pro Research Reportsets out the process control market share estimates, the 2-nanometer fab transition and whether operating margins can hold.
Check KLA's market share, timelines, and margin outlook: Access the KLA Corporation Pro Research Report on InvestingPro
Looking beyond cyclical equipment sell-offs
KLA's recent operating results highlight the resilience behind its franchise, delivering a record $4.14 billion quarter alongside an elite 46.1% operating margin. When broader sector sell-offs outpace operational reality, valuation discounts emerge in businesses whose products customers simply cannot cut from their budgets.
Capturing those opportunities before broad sentiment normalizes is why ProPicks AI evaluates company fundamentals monthly. Rather than attempting to time macro semiconductor cycles, the Tech Titansstrategy systematically rebalances toward proven cash generators with dominant pricing power—spanning semiconductor inspection, chip manufacturing, developer software, and enterprise cloud infrastructure.
For investors seeking high-conviction ideas in the newly updated portfolios, full access to all ProPicks AI strategies costs just $9 a month.
Browse what each AI-picked strategy holds after this month's rebalance: Explore the full list of strategies on InvestingPro
Disclosure: The author holds no position in the stocks mentioned. Data and financial metrics as of November 4, 2026.
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