What Could Derail KLA Stock?

November 4th, 2026 · by Trefis TeamKLACYTD+29.0%SPYYTD+11.2%QQQYTD+11.8%Analyze KLAC →For questions about this article or underlying research, email help@trefis.com.

Shares of KLA (KLAC) trade at 38.8 times the company’s last twelve months of earnings, compared with 22.8 for the S&P 500. Sales are growing fast, with revenue up 28.9% from a year earlier in fiscal Q1 2027. The bigger risk sits on the cost side, an issue management itself raised during its October 28, 2026 call. So which cost has KLA flagged, and why can’t the company simply charge more for its systems?

_Image from Pixabay KLA Is Paying More For Memory In Its Systems

The cost is memory, a component KLA’s systems use for image processing. Management said on the call that persistently high memory costs are offsetting the gains KLA normally makes as sales grow.

This dynamic shows up in the guidance. Management expects a gross margin of 62.5% plus or minus 1 percentage point for the December quarter, compared with 62.7% in the September quarter, both on its own adjusted basis. The midpoint sits slightly lower even though management guides revenue to about $4.7 billion, an increase from $4.14 billion.

KLA cannot easily pass the cost on. Management said raising prices on existing backlog and deals already in place is very difficult, so new pricing applies to deals on new products. Making the systems use memory more efficiently offers another fix, and management said that process takes some time. Nobody designing these systems imagined that kind of increase in memory cost, management added. So KLA is absorbing a cost it did not plan for, on deals it finds very hard to reprice.

How Much Of KLA Does The Memory Cost Reach?

The memory cost surfaces in the gross margin of the entire company. With KLA’s revenue reaching $14.5 billion over the last twelve months, each percentage point of gross margin represents about $145 million of gross profit a year.

The timing matters because KLA’s operating margin is at its best. Over the last twelve months it reached 42.6%, the highest level at any of the 40 quarter ends since fiscal Q2 2017. Valuation sat near the top of its own history as well: at the end of September 2026, KLA’s P/E of 48.4 was higher than at 38 of those 40 quarter ends.

The stock has fallen since then. Counting dividends, shares lost 24.5% from October 5 to November 3. On the same four quarters of earnings, the P/E dropped from 48.4 on September 30 to 38.8 at the November 3 close. Its latest close settled 48.2% below its June 30, 2026 high. Even so, KLA’s P/E remains well above the S&P 500’s.

How Worried Should KLA Holders Be?

The memory cost poses a real but slow-moving risk to KLA, and it sits in the margin rather than in demand. Management said the memory environment will continue to be challenging, adding that it does not know exactly when it will start to see improvement.

KLA established a target range for gross margin of 63% to 64% at its Investor Day. Management expects to be consistent with that model moving into the middle to back half of 2027 and into 2028, so it does not expect to get there for several quarters. Demand is not the worry. Management said demand ran ahead of supply throughout 2026.

When the company reports in January 2027, KLA’s gross margin for the December quarter, set against management’s guide, will be the figure to watch.

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