Morgan Stanley has downgraded semiconductor equipment manufacturer KLA-Tencor (KLAC.US) from "overweight" to "hold" while simultaneously raising its target price from $928 to $1,093. The downgrade stems from concerns over the stock's elevated valuation, which currently trades at a 30% premium.

Despite the rating cut, Morgan Stanley reinforced its confidence in KLA-Tencor's robust underlying business fundamentals, driven by solid demand from Taiwan Semiconductor Manufacturing Company, DRAM producers, and the advanced packaging sector. Reflecting this optimism, the investment bank increased its fiscal 2026 earnings per share projection for KLA-Tencor from $37.11 to $39.03.

Morgan Stanley maintains a positive outlook on the company's prospects, anticipating that wafer fabrication equipment (WFE) revenue will expand by 10% to reach $128 billion, marking an upward revision from its previous estimate of 5% growth.