The semiconductor manufacturing equipment sector undergoing a bottoming process, with a positive inflection not yet visible, according to KeyBanc — meaning further upside for KLA shares is limited. KeyBanc downgraded KLA to sector weight from overweight on account of the company’s shares recently exceeding its previous price target of $468. Shares closed near $461 on Thursday, just 1.4% below the that level. Earlier this month, they traded at more than $480. “From a fundamental standpoint, we think the cycle is in the process of bottoming,” analyst Steve Barger wrote in a Thursday note. “That said, it’s not clear to us that a positive inflection is imminent, and we expect to hear more about industry conditions at next week’s SEMICON West conference.” Memory and logic shipments have hit multiyear and prior-cycle lows in dollars and units, Barger said, noting that these reductions are enabling inventory normalization. The analyst admitted that while “significant decelerations” preceded strong recoveries in the past — with a strong recovery potentially driving KLA’s results to its record-levels from two quarters ago — he is not confident in a quick return to such conditions. “We don’t see evidence of a rapid return to industry demand exceeding supply, but we think shares may be discounting a return to those record run-rate levels,” said Barger. “We think shares have discounted a significant recovery well in advance of a fundamental improvement, and earlier than we’ve seen in prior cycles. We don’t doubt a cyclical upturn is coming, but until it becomes evident, the primary result of the market rally is to make shares more expensive and disconnected from current fundamentals,” he continued. KLA shares were down 1.3% in premarket trading. Shares have jumped more than 22% year to date. KLAC YTD mountain KLAC in 2023 –CNBC’s Michael Bloom contributed to this report.