KLA Corp. expects its advanced packaging equipment business to grow in the mid-to-high teens percentage range through calendar 2026, CEO Michael E. Hurlston told investors. The projection signals strong demand as AI chip manufacturers prioritize packaging innovation over traditional node shrinks.
KLA increased indium phosphide capacity by more than 20% in the December quarter alone. Indium phosphide enables high-speed optical interconnects critical for AI data center infrastructure. Most initial 1.6-terabit transceivers use electro-absorption modulated lasers, and 200-gigabit lane speeds are exceeding expectations, Hurlston said.
Advanced packaging allows chipmakers to stack memory closer to processors and connect multiple dies in a single package. This approach delivers performance gains without requiring access to TSMC's most advanced manufacturing nodes, which remain supply-constrained and expensive.
The strategic shift creates opportunities for equipment makers specializing in packaging technologies. KLA's stock has outperformed the broader semiconductor equipment index as investors recognize packaging as a bottleneck. Companies unable to secure leading-edge foundry capacity are investing heavily in packaging to maintain competitive AI chip performance.
The trend extends beyond AI accelerators. High-bandwidth memory packaging, chiplet integration, and 3D stacking require specialized metrology and inspection equipment. KLA's packaging revenues are growing faster than its core semiconductor process control business, which remains cyclically exposed to memory chip demand.
For AI chip designers, packaging expertise is becoming a differentiator. Companies that optimize chip-to-chip interconnects can achieve better power efficiency and lower latency than competitors relying solely on process technology. This dynamic supports sustained equipment demand even if overall semiconductor capital expenditure moderates.
The advanced packaging market is projected to grow as percentage of total semiconductor equipment spending through 2026. Equipment makers with packaging portfolios—including KLA, ASML's assembly systems division, and Lam Research—are positioned to capture outsized share of industry investment as AI infrastructure buildout continues.