KLAC KLA Corporation
Best-in-class moat and margins, but the price already assumes a decade of AI-driven perfection.
The story
KLA is the dominant franchise in semiconductor process control and metrology, with about 55% share and 40%+ operating margins. That position is protected by deep yield-data lock-in and high switching costs at leading-edge fabs. AI-driven leading-edge logic, HBM and advanced packaging are lengthening its growth runway, but the business still rises and falls with the wafer fab equipment (WFE) cycle. It is a mature-growth franchise that is reinvesting modestly and returning most of its cash.
A 12-year horizon fits a durable moat, since process-control intensity rises with every node and packaging step. Margins settle at 42%, just below the 43.4% peak, to allow for the cycle and pressure in China. Sales-to-capital is set at 2.2 rather than the reported 1.11 because the reported figure is inflated by goodwill; incremental growth needs little physical capital (capex is about 3% of sales). Beta is slightly below the 1.3 industry anchor because KLA's service base and share are steadier than peers'.
Value drivers
| Revenue growth (Y1) | 15.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 12y |
| Target operating margin | 42.0% |
| Years to target margin | 3 |
| Sales-to-capital | 2.20 |
| Beta | 1.15 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 10.2% |
| Terminal WACC | 9.6% |
Valuation bridge
| PV of explicit FCFF | 55.82B |
| PV of terminal value | 57.99B |
| Equity value | 108.48B |
| ÷ shares → per share | $83.12 |
News
neutral +0.10 · 8 articles
- Teradyne Strengthens AI Test Portfolio: Can It Beat KLAC & COHU?
- 3 AI Infrastructure Stocks Retail Investors Are Watching Right Now
- The Zacks Analyst Blog Highlights Applied Materials, Lam Research and KLA
- KLA (KLAC) Is Deepening Its Role In Semiconductor Metrology
- 3 Top Chip Equipment Stocks to Buy as AI Demand Fuels BofA Optimism
- Nasdaq rally hasn't stopped these tech stocks from flashing warning signs
- KLA (KLAC) Stock Moves 2.36%: What You Should Know
- LRCX Eyes Mid-40s Operating Margin: Is the Long-Term Goal Achievable?
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 15.62B | 15.0% | 42.9% | 5.78B | 925.87M | 4.85B | 4.40B |
| 2 | 17.80B | 14.0% | 42.5% | 6.51B | 990.54M | 5.52B | 4.54B |
| 3 | 20.09B | 12.9% | 42.0% | 7.27B | 1.04B | 6.23B | 4.65B |
| 4 | 22.48B | 11.9% | 42.0% | 8.13B | 1.08B | 7.05B | 4.78B |
| 5 | 24.91B | 10.8% | 42.0% | 9.01B | 1.11B | 7.91B | 4.86B |
| 6 | 27.34B | 9.8% | 42.0% | 9.90B | 1.11B | 8.79B | 4.90B |
| 7 | 29.73B | 8.7% | 42.0% | 10.76B | 1.08B | 9.67B | 4.89B |
| 8 | 32.01B | 7.7% | 42.0% | 11.59B | 1.04B | 10.55B | 4.84B |
| 9 | 34.14B | 6.6% | 42.0% | 12.35B | 965.66M | 11.39B | 4.74B |
| 10 | 36.05B | 5.6% | 42.0% | 13.05B | 867.52M | 12.18B | 4.60B |
| 11 | 37.68B | 4.5% | 42.0% | 13.64B | 744.74M | 12.89B | 4.42B |
| 12 | 39.00B | 3.5% | 42.0% | 14.12B | 599.51M | 13.52B | 4.20B |
Key risks
- A WFE cyclical downturn or a pause in AI capex compresses revenue and margins
- Export controls cut China revenue, which recently made up a large share of sales
- The multiple (about 50x EBIT) prices in years of flawless execution, so small disappointments could de-rate the stock sharply
Catalysts
- Process-control intensity rises with GAA/2nm, backside power, HBM and advanced packaging
- Services revenue and buybacks grow steadily, supporting per-share value through downturns