Price $172.90 · Base $59.07 · Price is +193% vs base
What they do
KLA sells the machines chipmakers use to find defects and measure features on wafers and photomasks, plus the software that turns that data into yield. Every leading-edge fab needs it: as transistors shrink and get stacked (gate-all-around, backside power, HBM, advanced packaging), there are more process steps where a defect can kill a die, and more inspection per wafer. By industry estimates KLA holds roughly half or more of the process-control market, several times its nearest rival. Customers are the big chipmakers: TSMC, Samsung, SK hynix, Intel, Micron, and Chinese fabs.
FY26 revenue mix ($13.58B, FYE June): wafer inspection $6.63B (49%), patterning/reticle and metrology $2.71B (20%), services $3.13B (23%, ~80% under multi-year contracts), specialty semiconductor process (SPTS deposition/etch) $0.50B (4%), PCB and component inspection (ex-Orbotech) $0.46B (3%), other $0.15B (1%). By geography: China 30%, Taiwan 27%, Korea 14%, North America 13%, Japan 7%, Europe/Israel 5%.
It makes money on high-priced tools (62% gross margin, ~43% clean operating margin, the best in semicap) and then an installed-base annuity from service. Key sensitivities: the wafer-fab-equipment (WFE) capex cycle (memory and foundry spending swing ±20–30%), China (30% of sales, exposed to US export controls), leading-edge node timing at TSMC/Samsung/Intel, and process-control intensity (KLA's share of each WFE dollar).
Price (10/15 intraday, −3.3%)
$172.90
Base intrinsic value
$59.07
Bear → Blue-sky · prob-wtd
$36 – $116 · $65
Key driver
Discount rate; price implies ~6.0% WACC or ~22%/yr growth for 10 yrs
The Take — The best business in semicap, priced as if the cycle has been abolished. Don't pay 3× intrinsic.
The franchise is the best in the group. KLA's clean operating margin (SBC expensed; acquired amortization, impairments and restructuring added back) has held between 39.7% and 43.1% every year since FY21. That includes FY24, when revenue fell 6.5%. FY26 revenue was +11.7% to $13.58B. Clean EBIT was $5.85B (43.1%), and $6.19B (45.6%) once R&D is capitalized. Free cash flow was $3.77B, and $3.35B went back to shareholders. Services ($3.13B, 23% of sales) grow 13–15% a year under contract. R&D-adjusted after-tax ROIC is about 45%. Q1 FY27 guidance ($4.0B ± $0.2B, 62.5% non-GAAP GM) and management's call for a stronger 2H CY26 into 2027 both point up.
The model already gives KLA credit for that and still lands at $59.07. The base case takes revenue +22% in FY27 to $16.6B and +10% in FY28, then a −4% digestion year (WFE always has one), then 9% decaying to 3%: $25.2B by FY36, a 6.4% 10-yr CAGR. That is in line with or above long-run WFE growth. The steady-state R&D-adjusted margin is 44.8%, the FY22–26 average (41.8% clean + 3.0pt R&D add-back), not the cycle peak. Discounted at a 10.9% WACC (unlevered β 1.30, the same as the AMAT/LRCX builds) gliding to 9.9%, it is worth $59 a share. Even the bull case ($33B FY36 revenue, 48% margin, 20% terminal ROIC) is only $81. The blue-sky case (FY36 revenue $43B, 52% margin, 30% terminal ROIC) is $116.
Reverse DCF: the price needs something that can't happen or a discount rate the project doesn't use. At the base margin, $172.90 requires ~22% revenue growth every year for a decade, which puts FY36 revenue at ~$103B. That is about 70% of today's entire ~$140B WFE market. Even with blue-sky economics (52% margin, 30% terminal ROIC) it needs ~19%/yr. No margin solves it on the base path. The clean read: the market is discounting KLA at about 6.0%, roughly 5 points below a bottom-up cost of capital at 5.2% Rf. FY27 base FCFF of $5.1B on a ~$227B EV is a ~2.2% FCF yield, below the risk-free rate, for a cyclical.
Context: the whole group screens the same way. On 2026-09-09 (full standard) AMAT came out at ~$156 vs $464 (+197%) and LRCX at ~$91 vs $314 (+245%). KLAC at +193% fits right in. This is a sector priced on AI-capex momentum and scarcity premium, not cash flows. There is no prior standalone KLAC valuation. The stock is up ~64% from its 52-week low ($105, 10/15/25) and has swung between ~$165 and ~$270 since June, which shows how far price has drifted from any fundamental anchor.
Call: AVOID new money. Value entry is <$65 (prob-weighted $65); an aggressive quality-premium starter only below ~$95 (≈1.5× base, the −3pt-WACC row). Holders: treat it as a momentum position, not a value hold. Trim into strength at $200–210 (the 10/5–10/9 highs) and keep a core of no more than 2% of capital. Q1 FY27 earnings Oct 28, 2026 after close (consensus EPS $1.18; guide $1.16 ± $0.10 non-GAAP). Defined-risk expression: after the print, sell covered calls on holdings, or open a 30–45 DTE bear call spread with the short strike near $210–215, above the October high, to harvest post-earnings IV. Do not short it naked. KLA has repeatedly gapped 10–15% on WFE commentary and has a $7B buyback behind it.
Risk Profile — HIGH
HIGH
Valuation / discount rate. The price implies a ~6% cost of capital. A 100bp move in WACC shifts base value ~12–15%, but the bigger risk is the market re-rating toward any normal discount rate. Short duration; long rates falling.
HIGH
WFE capex cycle. Memory and foundry capex swing 20–30% peak to trough, and 77% of sales are new tools. FY24 revenue fell 6.5%. Long an AI/HBM/GAA spending extension; short any 2027–28 digestion. A downturn hurts the multiple more than the margin.
HIGH
China / export controls. China was 30% of FY26 revenue ($4.05B), down from 43% in FY24. Further US entity-list or tool-category restrictions would hit revenue directly. Short the policy risk; long any easing.
MED
Customer concentration / node timing. TSMC and Samsung dominate leading-edge spend (Taiwan 27%, Korea 14%). A slip at 2nm/A16, or Intel foundry pulling back, moves process-control demand. Long leading-edge ramps.
MED
Competition in process control. Applied (e-beam), Onto, Nova, Camtek and Chinese domestic suppliers are gaining in metrology and packaging inspection. KLA's share is high but not guaranteed. Short share erosion at the margin.
LOW
Balance sheet. $4.86B cash and investments against $5.89B debt (net ~$1.0B, <0.2× EBITDA), interest covered ~20×. The risk is in capital allocation: book equity is only $6.35B after years of buybacks, so the repurchases at 40×+ earnings destroy value at this price.
What the "inventory" really is: you are buying a ~45% ROIC process-control monopoly, which is true, at a price that capitalizes it at roughly a 6% discount rate and assumes no WFE down-cycle ever compresses the multiple. The real bet is on the discount rate and the duration of the AI-capex cycle, not on KLA's execution. The tornado shows that no operating driver (growth ±20%, margin ±4pt, terminal ROIC 10–30%) moves value more than ±$12/share. Only a several-hundred-basis-point drop in the discount rate reaches the price.
Scenario values per share vs price
Bear: FY27 +14%, then a −14%/−6% WFE downturn (China restrictions plus a memory/foundry digestion), 38% R&D-adj margin, sales-to-capital 1.6, terminal ROIC 12%. FY36 revenue $17.4B. Base: $25.2B FY36, 44.8% margin (FY22–26 normalized), terminal ROIC 14.5%. Bull: +28%/+15% AI build-out, no down year, $33.3B FY36, 48% margin, terminal ROIC 20%. Blue-sky: 10–30% growth for a decade, $43.3B FY36, 52% margin, terminal ROIC 30%, g 3%. Prob-weighted 20/50/20/10 = $64.55.
Driver tornado: Δ value/share from base $59.07
None of the operating swings gets within $100 of the $172.90 price. Value is insensitive to terminal ROIC and sales-to-capital because KLA reinvests so little: base reinvestment is under 25% of NOPAT in every year.
Green = at least 5% above price ($172.90); yellow = within ±5%; orange = up to 30% below; red = more than 30% below. The path multiplier scales FY36 revenue (the base FY27–36 path includes one −4% digestion year). The FY22–26 cycle-average R&D-adjusted margin is 44.8%, and FY26 printed 45.6%. The price is only reached at 4× the base path (~$100B FY36 revenue, ~22% CAGR) with a margin of roughly 44–48% or more.
Sensitivity: value/share by WACC (high-growth → stable) × terminal growth
WACC (HG → stable) ↓ / g →
1.5%
2.0%
2.5%
3.0%
3.5%
6.9% → 5.9%
$112
$118
$127
$138
$155
7.9% → 6.9%
$91
$94
$98
$104
$111
8.9% → 7.9%
$76
$78
$81
$83
$87
9.9% → 8.9%
$66
$67
$68
$70
$72
10.9% → 9.9%
$58
$58
$59
$60
$61
11.9% → 10.9%
$51
$52
$52
$53
$53
12.9% → 11.9%
$46
$46
$47
$47
$47
Even 400bp off the WACC (a 6.9% → 5.9% cost of capital with 5.2% Rf) gets only to $112–155. Reverse-solved, the price implies a ~6.0% high-growth WACC on the base operating case.
FY19 includes Orbotech (closed Feb 2019) for a partial year. FY20, FY24 and FY25 GAAP EBIT carry goodwill/intangible impairments of $257M, $289M and $239M. The FY24 revenue dip (−6.5%) is the last WFE digestion: clean margin held at 39.7%.
Invested capital: book (equity + debt + leases − cash/investments) + research asset
$7,646 + $4,127 = $11,773
R&D-adjusted after-tax ROIC (14% effective tax)
45.2%
FY26 cash: OCF $4,143 − capex $376 = FCF · SBC
$3,767 · $310 (8% of FCF)
GAAP EBIT = revenue − cost of revenue − R&D − SG&A − goodwill/intangible impairment, from XBRL. It ties to pre-tax income + interest − other income within $0–14M for FY21–26. One-offs = restructuring + impairments. Acquired amortization is added back; SBC stays expensed. Normalization note: KLA's margin is unusually stable through the cycle (39.7–43.1% since FY21), so the "normalize, don't capitalize the peak" rule bites mostly on revenue. That is why the base path includes a digestion year rather than compounding FY27's +22%. Book invested capital is understated by ~$10B+ of cumulative buybacks, which is why ROIC is so high. Reinvestment uses a marginal sales-to-capital of 2.0 on the same R&D-adjusted basis.
Base-case FCFF ($M; margin and reinvestment on R&D-adjusted basis)
TV share is 47%, under the 70% flag. Tax: 15% (near the 13–14% FDII-aided effective rate) for FY27–31, gliding to the 21% marginal rate by FY36. FY27 margin of 46.5% reflects guidance-level operating leverage, then glides to the 44.8% cycle-average by FY29. The terminal ROIC of 14.5% (WACC + ~4.6pt) is deliberately conservative versus today's ~45%. Raising it to 30% adds only ~$3/share.
Cost of capital
Risk-free (10Y UST)
5.20%
Equity risk premium
4.40%
Bottom-up unlevered beta (semiconductor equipment; same as AMAT/LRCX builds)
1.30
Market D/E (debt + leases $6,152M / mkt cap $225,636M)
2.7%
Levered beta
1.328
Cost of equity
11.04%
Pre-tax cost of debt (synthetic: EBIT/interest ~20× → AA/A-range, Rf + 1.0%) → after-tax at 21%
6.20% → 4.90%
Debt weight
2.65%
WACC: high growth (FY27–31), gliding over FY32–36 to
10.88%
Stable WACC (β 1.10 unlevered, 10% debt)
9.91%
Reverse DCF: high-growth WACC that equates base case to $172.90
Split check: 10-for-1 forward split, record 6/4/26, split-adjusted trading from 6/12/26. FY26 diluted WASO 1,319.6M (split-restated). Market cap at $172.90 = $225.6B, which ties to the Robinhood $225.6B.
Quote verified
Street: 21 Buy / 10 Hold / 0 Sell, mean target $237.92 (range $180–325, as of 10/9/26)
Base is −75% vs mean target
Sources: SEC XBRL via Robinhood filing facts (KLA 10-Ks for FY2020, FY2023, FY2026; filed 8/6/2026), KLA Q4/FY26 earnings release (7/28/2026) for Q1 FY27 guidance and segment mix, KLA 8-K (5/7/2026) on the 10-for-1 split, Robinhood quote/fundamentals/analyst ratings/earnings calendar (10/15/26), TIKR (5/21/26) for 2026 WFE outlook (>$140B), the $7B buyback and the 13–15% services CAGR target, and MarketBeat (2/3/26) on WFE definitions. Peer comparisons are from the project's 2026-09-09 resource-report builds. Estimates are labeled. Q1 FY27 earnings Oct 28, 2026 after close. Educational analysis, not investment advice.