Story updated at 10 a.m. to reflect market activity.
Shares of KLA-Tencor fell 1.3% to $67.91 in morning trading.
Analysts Weston Twigg and Daniel Baksht said that stock in the semiconductor company is up 7% year-to-date despite the prospect of lower expected market demand.
"KLAC flirted with our $72 price target last week before dropping back into the high $60s," the analysts wrote. "We appreciate the long-term drivers for KLA-Tencor-higher process complexity is good for the company-but we are beginning to struggle with two ideas. First, if our thesis plays out that 28 nm capacity may grow meaningfully while upcoming nodes become smaller, it is likely a more negative event for KLA-Tencor than others (mature nodes are less process control intensive, in our view). Second, if Samsung and GLOBALFOUNDRIES fail to win Apple, QUALCOMM or any other meaningful customer at the 14 nm FinFET node, those two companies may not add meaningful foundry capacity beyond 28 nm, which could drive disappointment in foundry demand next year, potentially impacting KLA-Tencor on a relative basis more than peers. We don't (as of yet) see meaningful upside to our 2015 estimates, and with the stock approaching our target of 15x our C2015 EPS estimate, we are downgrading the stock to Sector Perform. We would monitor this one carefully; if foundry demand picks up meaningfully, KLAC has all the elements to continue its run of outperformance."
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