KLA (KLAC) is expected to benefit as supply constraints ease and its leading-logic mix becomes a tailwind, Morgan Stanley said Monday in a note, with the brokerage forecasting that the company will outgrow the wafer-fabrication-equipment market in 2027 after a tough 2026 while remaining cautious about 2028.

The company experienced unfavorable leading logic mix in 2026 due to 3-nanometer adds with 10% process-control intensity, as well as an unfavorable DRAM mix due to a lack of new node investment and a high upgrade mix.

The brokerage models KLA's tool growth at 25%, versus WFE growth of 39%, marking the largest underperformance since 2017, according to the note.

Morgan Stanley said it is bullish on leading logic and process-control intensity, but worried about DRAM, given the profitability of producing an incremental bit. Manufacturers are emphasizing increasing capacity at existing nodes rather than scaling the next node, the brokerage said.

The brokerage raised its leading logic forecasts and increased its gross-margin estimates, bringing its calendar-year 2027 revenue and EPS estimates to $21.4 billion and $6.77 from $20.4 billion and $6.23, respectively.

Morgan Stanley kept an overweight rating on KLA and lowered its price target to $227 from $253.

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