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Improving component supply could release delayed shipments while advanced-packaging and service demand support sales and profit.
Semiconductor Process Control annual revenue growth falls below 5% for two consecutive fiscal years.
Sell: the $185.60 report-date price stands above $109.19 Fair value and $128.93 Potential value.3
For an ordinary investor, Sell means avoiding a new position and reducing existing exposure while this valuation gap remains.
The implied change from the report-date price to Fair value is negative 41.17%. Potential value also remains below the report-date price.3
The main risk is slower process-control growth combined with lower purchases from the largest customer. That would reduce sales, fixed-cost absorption, earnings, cash, and value per share.67
The clearest upside is improving component supply. Released shipments and advanced-packaging demand could sustain near-term growth if margins remain resilient.4
Management describes broad node demand and high-value products. This supports breadth, but does not prove durable switching costs.4
The expansion can continue if advanced-packaging demand and easing component constraints release delayed shipments. Industry growth is supportive context, not a direct company forecast.4
Sell because credible near-term growth does not justify the report-date price relative to Fair value.3
Sell because credible near-term growth does not justify the report-date price relative to Fair value.3
KLA develops industry-leading process control and yield management solutions and services that enable innovation throughout the semiconductor and related electronics industries. KLA CORP provides advanced process control and process-enabling solutions for manufacturing wafers, reticles, ICs, packaging, PCBs and IC substrates. President Biden signed into law the CHIPS and Science Act of 2022 (“CHIPS Act,” where “CHIPS” stands for Creating Helpful Incentives to Produce Semiconductors) on August 9, 2022. There was no material tax impact to its Consolidated Financial Statements from the AMIC provision. Its operating segments are aggregated into reportable segments based on several factors including, but not limited to, customer base, homogeneity of products, technology, delivery channels and similar economic characteristics.
KLA CORP has three reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB and Component Inspection. (1)Other segment items for each reportable segment includes:
The main operating stress combines slower core demand, reduced purchases by the largest customer, and delayed shipments. Sales would weaken first, followed by fixed-cost absorption, margins, earnings, and free cash flow.
KLA’s product value across technology nodes may support customer relevance, but the evidence does not establish switching costs, product-level share, or account-level pricing power.
Strong margins and cash generation are business outcomes, not moat sources. The advantage remains conditional on continued process-control demand and stable customer relationships.
FY2026 operating income and free cash flow show strong economics. They do not, by themselves, prove a structural moat.3
The highlighted cell is Fair value when every assumption sits at its base level ($109.19). Each row and column shows what Fair value becomes when one assumption moves.
Free cash flow to the firm stays positive in the first projected year at $4.9B after modeled capex of $375.9M, with terminal value at 52.2% of . A sudden drop in free cash flow is not projected unless capital spending relative to , reinvestment, or resets materially.
A beat would strengthen near-term visibility but would not resolve the valuation gap or long-run growth duration.
Industry capital spending equals 4.1% of revenue and twice depreciation in the benchmark dated 2026-09-01.
The expansion can continue if advanced-packaging demand and easing component constraints release delayed shipments. Industry growth is supportive context, not a direct company forecast.
A digestion phase would weaken process control, which supplied $12.25 billion of $13.58 billion in FY2026 revenue, and reduce fixed-cost absorption. The broad FY2028 company-revenue forecast range shows cycle duration remains uncertain.
No new allocation; reduce existing exposure.. The report-date price exceeds Potential value, while concentration and growth-duration risks remain unresolved.3
Do not average down while the Sell decision holds. Reassess only after valuation and operating triggers improve together.
The $185.60 report-date price is above $109.19 Fair value and $128.93 Potential value.3
Reduce exposure because near-term growth does not offset customer concentration and uncertain growth duration.17
A strong earnings reaction would not close the valuation gap unless future earnings expectations and durable margins also improve.
Sell because the report-date price stands well above Fair value and Potential value.3
Near-term process-control growth is credible, but concentration, supply timing, and uncertain post-FY2028 duration leave insufficient valuation support.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
The records this analysis drew on, as they stood when it was run.
That would reduce sales and fixed-cost absorption. Improving supply and the FY2026 margin structure holding through FY2028 would disconfirm this path.
The thesis breaks if annual process-control growth falls below 5% for two fiscal years while the largest customer cuts purchases or presses pricing.7
More than two consecutive constrained quarters would turn shipment timing into weaker sales and higher supplier, inventory, or working-capital needs.4
A cost of equity above 12.408% within 12 months would reduce what investors should pay for distant earnings, even if near-term profit remains positive.2
A sustainable earnings multiple below 18.6x within 60 months would lower value as growth matures and investors pay less for each future earnings dollar.
The five developments that would weaken our investment case.
Because the segment supplied most FY2026 revenue, weaker growth would flow directly into company sales. Lower sales would reduce fixed-cost absorption, operating profit, and cash generation.
Current:FY2026 process-control revenue was $12.25 billion.
Alert ifAnnual growth below 5% for two consecutive fiscal years.
A sustained margin break would show that revenue is converting into less operating profit. That would lower earnings and cash generation.
Current:FY2026 operating margin was 41.69%.
Alert ifBelow 39% for two consecutive fiscal quarters.
Because one customer accounts for a material share of revenue, lower purchases would flow directly into company sales. The resulting loss of scale could weaken operating profit and cash generation.
Current:The largest customer represented 19% of FY2026 revenue.
Alert ifAt least 19% for another fiscal year with margin deterioration.
Repeated shipment limits would delay sales and weaken near-term cash generation. Persistence would show that component availability is a continuing operating constraint rather than short-lived timing noise.
Current:First-half FY2026 shipments were constrained, while second-half supply was improving.
Alert ifConstraints reported for more than two consecutive quarters.
A verified regional disruption would hit a large reported revenue pool, weakening sales, factory absorption, profit, and free cash flow.
Current:FY2026 Taiwan-attributed revenue was $3.64 billion.
Alert ifA verified regional order, shipment, or collection disruption in any reported quarter.
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and at , then adjust for signed per current share.
Multiply the peer median PEG by this stock's forecast growth to derive an implied forward P/E, then apply it to forward EPS.
Solve for the growth rate that makes the model value equal the report-date share price.
Better component availability supports growth while FY2026 profitability holds. Weaker annual revenue expectations or sustained margin erosion by FY2028 would disconfirm it.14
Core growth and profitability must persist without a large internal capital build. Renewed shipment limits or weaker margins by FY2028 would disconfirm it.4
Meeting guidance preserves the near-term thesis without proving that elevated growth can persist.
A miss with weaker margins or renewed constraints would challenge both growth and cash generation.
FY2026 operating cash was below reported profit, although both remained positive. Investors should require future earnings growth to appear in cash as well.6
Slower core growth would weaken company sales and fixed-cost absorption.7
Lower margins would show that costs or pricing pressure are absorbing growth.3
Greater dependence would amplify order cuts, repricing, or internal substitution.7
Persistent limits would delay sales and raise inventory or supplier costs.4
| $9.21B |
| $10.50B |
| $9.81B |
| $12.16B |
| $13.58B |
| +10.2% |
| Gross profit | $5.62B | $6.28B | $5.88B | $7.40B | $8.32B | +10.3% |
| Operating income | $3.65B | $4.09B | $3.50B | $4.95B | $5.66B | +11.6% |
| Net income | $3.32B | $3.39B | $2.76B | $4.06B | $4.83B | +9.8% |
| EPS (diluted) | $2.19 | $2.42 | $2.03 | $3.04 | $3.66 | +13.7% |
| EBITDA | $4.01B | $4.50B | $3.90B | $5.34B | $5.76B | +9.5% |
| R&D | $1.11B | $1.30B | $1.28B | $1.36B | $1.53B | +8.5% |
| SG&A | $860.0M | $986.3M | $969.5M | $1.03B | $1.13B | +7.1% |
FY2026 operating cash was $4.14 billion and free cash flow was $3.77 billion. Strong cash generation supports resilience. Persistent shipment constraints could delay sales and weaken near-term operating cash generation.456
Diluted average shares declined from 1.362 billion in FY2024 to 1.320 billion in FY2026. Total debt dated 2026-09-08 exceeded filed cash dated 2026-06-30. Because the dates differ, the comparison is directional and future repurchase capacity through a downturn remains uncertain.
FY2026 profit and free cash flow are strong, but those figures alone do not establish a return-on-invested-capital trend.
No ROIC comparison is presented. The report-date WACC is 10.2646%, so economic value creation cannot be quantified here.
FY2026 operating income was $5.66 billion on $13.58 billion of revenue.
Revenue growth can produce substantial earnings, but holding this margin requires pricing and costs to remain disciplined.
FY2026 free cash flow was $3.77 billion after $375.95 million of capital spending.
Cash supports operations and shareholder returns, although supply persistence could require more working capital or reinvestment.
| Revenue | $3,657,556,000 |
|---|---|
| Cost of revenue | $1,413,108,000 |
| Gross profit | $2,244,448,000 |
| Operating expenses | $690,500,000 |
| Operating income | $1,553,948,000 |
| Non-operating items and tax | -$190,889,000 |
| Net income | $1,363,059,000 |
| Total assets | $17,951,535,000 |
|---|---|
| Cash | $1,649,842,000 |
| Current assets | $12,381,790,000 |
| Total liabilities | $11,601,715,000 |
| Current liabilities | $4,304,927,000 |
| Shareholders’ equity | $6,349,820,000 |
| Net income | $4,830,771,000 |
|---|---|
| Operating inflow | $5,534,920,000 |
| Depreciation and amortization | $393,978,000 |
| Stock-based compensation | $310,171,000 |
| Operating cash flow | $4,143,079,000 |
| Operating outflow | $1,391,841,000 |
| Cash available | $6,225,543,000 |
| Beginning cash | $2,078,908,000 |
| Exchange-rate effect | $3,556,000 |
| Investing outflow | $1,190,095,000 |
| Capex | $375,945,000 |
| Other investing activities | $814,150,000 |
| Financing outflow | $3,385,606,000 |
| Share repurchases | $2,289,769,000 |
| Dividends paid | $1,057,832,000 |
| Net debt repayment | $1,602,000 |
| Other financing activities | $36,403,000 |
| Ending cash | $1,649,842,000 |
| Investing cash flow | -$1,190,095,000 |
| Financing cash flow | -$3,385,606,000 |
Source: SEC EDGAR · Filed 2026-08-06 · SEC EDGAR
| Revenue by operating segment | Revenue | Share | YoY |
|---|---|---|---|
| Semiconductor Process Control | $12.2B | 90.2% | 11.9% |
| PCBAnd Component Inspection | $750.4M | 5.5% | 20.7% |
| Specialty Semiconductor Process | $584.1M | 4.3% | -0.5% |
Source: SEC EDGAR · Filed 2026-08-06 · SEC EDGAR
| Revenue by geography | Revenue | Share | YoY |
|---|---|---|---|
| China | $4B | 29.8% | 0.1% |
| Taiwan | $3.6B | 26.8% | 13.7% |
| South Korea | $1.8B | 13.5% | 26.2% |
| North America | $1.8B | 12.9% | 29% |
| Japan | $915.1M | 6.7% | -19.2% |
| Europe And Israel | $726.7M | 5.4% | 26.6% |
| Rest Of Asia | $654.4M | 4.8% | 69.6% |
Point-in-time financial data used in the 2026-09-08 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017-06-30 | $3.5B | $1.3B | $926.1M | $1.1B | $1B | $38.6M | $57.8M | $50.9M | $25M | $344M | — | -$560.9M | -$472.8M | — | $1.2B | $3B | $2.9B | 36.7% | — | — | — |
| 2018-06-30 | $4B | $1.6B | $802.3M | $1.2B | $1.2B | $66.9M | $62.7M | $62.8M | $203.2M | $402.1M | — | $291.6M | -$1.3B | $1.2B | $1.4B | $2.9B | $2.2B | 38.1% | — | — | — |
| 2019-06-30 | $4.6B | $1.7B | $1.2B | $1.2B | $1B | $130.5M | $233.2M | $94.2M | $1.1B | $472.3M | — | -$1.2B | -$360M | $1.4B | $1B | $1.7B | $3.4B | 30.4% | — | — | — |
| 2020-06-30 | $5.8B | $1.8B | $1.2B | $1.8B | $1.6B | $152.7M | $348M | $111.4M | $829.1M | $522.4M | — | -$258.9M | -$1.3B | $1B | $1.2B | $2B | $3.5B | 30.3% | — | — | — |
| 2021-06-30 | $6.9B | $2.9B | $2.1B | $2.2B | $2B | $231.6M | $333.3M | $111.8M | $938.6M | $559.4M | — | -$500.4M | -$1.5B | $1.2B | $1.4B | $2.5B | $3.4B | 36.0% | — | 7.0% | — |
| 2022-06-30 | $9.2B | $4B | $3.3B | $3.3B | $3B | $307.3M | $363.3M | $126.9M | $4B | $638.5M | $3.2B | -$876.5M | -$2.3B | $1.4B | $1.6B | $2.7B | $6.7B | 39.7% | — | 8.5% | — |
| 2023-06-30 | $10.5B | $4.5B | $3.4B | $3.7B | $3.3B | $341.6M | $415.1M | $171.4M | $1.3B | $732.6M | -$787.3M | -$482.6M | -$2.8B | $1.6B | $1.9B | $3.2B | $5.9B | 38.1% | — | 10.5% | — |
| 2024-06-30 | $9.8B | $3.9B | $2.8B | $3.3B | $3B | $277.4M | $401.7M | $212.7M | $1.7B | $773M | $735M | -$1.5B | -$1.8B | $1.9B | $2B | $4.5B | $5.9B | 37.1% | — | 11.1% | — |
| 2025-06-30 | $12.2B | $5.3B | $4.1B | $4.1B | $3.7B | $335.3M | $394.1M | $265M | $2.1B | $904.6M | -$750M | -$202.5M | -$3.8B | $2B | $2.1B | $4.5B | $5.9B | 41.2% | — | 10.8% | — |
| 2026-06-30 | $13.6B | $5.8B | $4.8B | $4.1B | $3.8B | $375.9M | $394M | $310.2M | $2.3B | $1.1B | -$1.6M | -$1.2B | -$3.4B | $2.1B | $1.6B | $4.9B | $5.9B | 41.7% | — | — | — |
KLA Corporation (KLAC) trades at 32.0x forward earnings against a peer median of 27.3x. Its EV/EBITDA of 40.3x compares with a peer median of 36.9x. The comparison uses 4 peers: Applied Materials Inc., Lam Research Corporation, Teradyne Inc. and ASML Holding N.V., as of 2026-09-02 to 2026-09-08.
| Advanced-packaging process control | positive | Growth can lift the dominant process-control segment, but segment guidance cannot be applied to the whole company. |
| Service attachment | positive | Recurring service demand may extend growth, although the disclosed target has no resolved fiscal-year period. |
Process control supplied $12.25 billion of KLA's $13.58 billion FY2026 revenue. That exposure supports strong participation in an upcycle but makes company results sensitive to equipment-demand digestion.67
| Operating momentum does not offset the gap between the report-date price and Potential value. |
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
| Lam Research Corporation |
| 26.6x |
| 16.6x |
| 44.4x |
| 65.1% |
| 37.4% |
| TER | Teradyne Inc. | 30.6x | 12.5x | 36.9x | 36.5% | 33.2% |
| ASML | ASML Holding N.V. | 28.0x | 18.3x | 53.9% | 37.1% |
