KLA Corporation: Navigating the Tech Stock Landscape
In a previous analysis, we unveiled a list of “Goldman Sachs Tech Stocks: 10 Stocks to Buy.” This article delves into KLA Corporation (NASDAQ:KLAC), assessing its potential within the context of other leading tech stocks recommended by Goldman Sachs.
The Tech Sector’s 2024 Performance and 2025 Challenges
The technology sector, particularly chip companies, experienced a robust performance in 2024, fueled by the demand for artificial intelligence (AI) infrastructure. Despite a second-half slowdown due to valuation concerns and the evolving AI development timelines, tech maintained its status as a top-performing sector through mid-December. According to Goldman Sachs Research, U.S. tech stocks showed no signs of a financial bubble as of September 2024, with their expansion supported by strong financial fundamentals. The global tech sector’s earnings per share have surged approximately 400% since the Great Financial Crisis, far exceeding the broader market’s growth.
However, 2025 brought challenges. By March 5, the Information Technology and Communication Services sectors had declined by 4.42%, impacting the overall index. The “Magnificent Seven” tech giants, collectively losing approximately $2.7 trillion in market value over 50 days, were particularly affected by market volatility. Economic uncertainties and Federal Reserve policy expectations led to further declines in major U.S. indices, as reported by Reuters on March 18th, amplifying concerns about sector stability. Despite these short-term difficulties, the technology sector’s broader outlook remains positive. Deloitte’s 2025 Technology Industry Outlook anticipates a 9.3% rise in global IT spending, with significant growth expected in data center and software segments. AI spending is projected to expand at a 29% compound annual growth rate through 2028, indicating a strong long-term demand. Furthermore, a 2024 Morgan Stanley analysis indicates increasing hedge fund investment in technology, media, and telecom (TMT) stocks, specifically in the semiconductor and software areas, demonstrating ongoing institutional confidence.
AI’s Impact and Future Direction
While initial AI-driven investments focused on data center infrastructure, Goldman Sachs analysts anticipate a shift towards software companies as AI monetization matures. The focus is expected to move from AI model training to inferencing, where application revenue generation is key, promoting expansion within the software sector. Despite the emergence of AI competitors, like DeepSeek, substantial tech firms are increasing AI-related capital expenditures in pursuit of artificial general intelligence (AGI).
Nevertheless, investors should prepare for continued market volatility. Reuters reports that hedge funds reduced their holdings in U.S. tech and media stocks at the fastest pace in six months by February 21, reflecting changing institutional strategies. Warren Buffett’s Berkshire Hathaway’s portfolio adjustments indicate a slight underweighting of technology stocks. As the tech sector tackles both structural growth opportunities and near-term market fluctuations, investors should evaluate AI-driven innovation against macroeconomic risks.
KLA Corporation’s Position and Outlook
KLA Corporation (NASDAQ:KLAC) is a leading provider of process control and yield management solutions, vital for the semiconductor and nanoelectronics industries. The company offers inspection tools, metrology systems, and computational analytics, essential in manufacturing wafers, integrated circuits, packaging, and printed circuit boards. The company reported Q2 FY25 revenue of $3.08 billion, reaching the upper end of its guidance, and a GAAP EPS of $6.16, with non-GAAP EPS at $8.20, which is a result of five consecutive quarters of accelerating earnings growth. Improved revenue trajectory from an earlier 3% decline to 24% growth last quarter is also notable.
KLA Corporation’s advanced semiconductor process control solutions are essential for AI chipmakers such as Nvidia and Broadcom. Quarterly revenue rose 8.34%, despite a 6.41% year-over-year revenue dip with yearly earnings growth being 41.5%. Short interest increased by 17.13% month-over-month to 3.35 million shares (2.53% of float), illustrating the intensifying market focus. KLA Corporation closed at $719.61 on March 19, 2025, representing a 1.35% increase for the day, outperforming the broader market. Over five years, the company’s shares have returned over 500%. Analysts are optimistic, with 60% of 30 analysts issuing Buy ratings. Because of a strong earnings outlook, KLA Corporation remains vital in semiconductor equipment, benefiting from AI-driven industry tailwinds.
Overall, KLAC ranks 10th on our list of Goldman Sachs tech stocks. While acknowledging the potential for KLAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KLAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
