KLA Corporation (KLAC.US) is overvalued and has been downgraded by Morgan Stanley, but the strong fundamentals have been reaffirmed and profit expectations have been raised.

Morgan Stanley downgraded its rating on semiconductor equipment manufacturer KLA Corporation (KLAC.US) from "hold" to "hold/neutral", but raised its target price from $928 to $1093. The reason for Morgan Stanley's downgrade on KLA Corporation's stock rating is due to the stock's valuation still being too high - the current valuation premium is 30%. However, Morgan Stanley reiterated that the company's fundamentals are strong, thanks to strong demand from Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, DRAM manufacturers, and the advanced packaging sector. Therefore, Morgan Stanley raised its earnings per share forecast for KLA Corporation for the fiscal year 2026 from $37.11 to $39.03. Morgan Stanley still maintains confidence in the company's prospects, as wafer fabrication equipment (WFE) revenue is expected to grow by 10% to reach $128 billion, higher than the previously estimated 5% growth.