Barclays has named KLA Corporation (NASDAQ: KLAC) as its top pick among semiconductor equipment makers, arguing that the company is emerging as a clear leader in the wafer fabrication equipment (WFE) space.
The bank upgraded the stock to overweight from equal weight and raised its price target sharply to $1,200 from $750, suggesting an additional 8% upside potential from current levels.
KLA shares have already surged 76% year-to-date in 2025, outperforming many peers in the semiconductor capital equipment sector.
Barclays analyst Tom O’Malley attributed this momentum to accelerating investments in artificial intelligence (AI) infrastructure and KLA’s relatively lower exposure to geopolitical risks in China.
KLA stock gained 1.2% in premarket trading after the upgrade.
AI spending boosts semiconductor equipment outlook
In his research note, O’Malley highlighted that KLA is benefiting significantly from increased AI compute investments, which have driven stronger demand for wafer inspection and process control tools.
These tools play a critical role in ensuring chip quality and yield as semiconductor designs become more complex.
“At this point, we think eyes will continue to turn towards the long-term growth trajectory of these names,” O’Malley wrote.
“We upgrade KLAC to overweight as we consider it to be the best secular story in the group coupled with the lowest China risk profile.”
The upgrade follows Barclays’ broader update to its wafer fabrication equipment (WFE) model, which now extends estimates through calendar year 2027.
The revision incorporates insights from the SEMICON West industry conference, where executives and analysts shared optimistic views on AI-related semiconductor investments.
Although Barclays acknowledged that the semiconductor capital equipment sector remains “generally expensive,” it emphasized KLA’s strong fundamentals and unique positioning within the market.
China exposure seen as manageable
China remains a key uncertainty for the industry as US export restrictions and local capacity shifts continue to shape global semiconductor supply chains.
However, Barclays believes KLA is better insulated from these risks compared with peers due to its diversified business model and lower sales exposure to the Chinese market.
“China is still a risk to WFE, but KLAC appears relatively better insulated from a sales mix % exposure and business model standpoint,” O’Malley noted.
The firm projects that China’s semiconductor equipment spending will decline by 20% in 2026, but expects investors to focus increasingly on long-term growth rather than near-term disruptions.
O’Malley also pointed to promising growth opportunities outside of China, estimating a 10% increase in KLA’s revenue in 2026 as global demand for advanced chip production equipment continues to expand.
Analyst consensus remains mixed
The broader analyst consensus remains divided on the stock.
According to LSEG data, out of 28 analysts covering KLA, 17 rate it as a hold, while 11 assign a buy or strong buy rating.
Despite the mixed sentiment, Barclays’ latest report underscores a growing confidence in KLA’s ability to sustain growth amid industry headwinds.
The firm sees KLA’s robust positioning in the AI-driven chip manufacturing cycle and limited China exposure as key differentiators in an increasingly competitive market.
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