KLA CORPORATION (KLAC): what the price assumes

In the published model solve dated 2026-Q2, anchored at $176.19, KLA CORPORATION (KLAC) is priced for today's economics sustained for ~5.9 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-03.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/KLAC

Headline

FieldValue
TickerKLAC
CompanyKLA CORPORATION
Current price$176.19/sh
CompositionSemiconductor Process Control 90% / Specialty Semiconductor Process 4% / PCB and Component Inspection 6% / Effects of changes in foreign currency exchange rates 0%

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Must persist for5.9y
Multiple paid42x operating income

Solve inputs: computed at a 12.6% cost of capital; growth searched up to the 49% self-funding ceiling.

How unusual the bet is: within-range (limited comparison data)

ReferenceValue
vs own history+0.10σ
cohort percentile (of 188 peers)73

Valuation X-Ray

The price is justified by relative-multiple; asset-based/earnings-power/growth-DCF land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset3.53x4expensive
Earnings3.89x4expensive
Relative0.59x2justifies
Growth2.31x3expensive

Families that justify the price: Relative Families that call it expensive: Asset, Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.0%); the inversion above states its own rate.

Per-Model Detail (n=13)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$72.202.44xyesFCF base $4.0B, growth 12% (input: historical growth), terminal g 4.0%, WACC 9.0%, 6yr projection
DCF Exit MultipleGrowth$178.510.99xyesExit EV/EBITDA: 2417.2x / 2419.2x / 2421.2x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative——noP/E 26.9x (blended: static sector reference 18x + trailing (TTM) 48x), scenarios: 22.2x / 26.9x / 31.6x (bear / base = reference held flat / bull), EV/EBITDA 26.4x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$39.974.41xyesBV/sh $4.86, ROE (TTM) 76.1%, ke 9.3%
Two-Stage Excess ReturnAsset$184.860.95xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$76.222.31xyesRev $13.6B, growth 12% (input: historical growth; tapered), Terminal P/S: 6.6x / 8.0x / 9.4x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$250.640.70xyesEPS $11.47, growth 22% (input: historical EPS growth), PEG=2.18 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings——no—
Residual IncomeAsset$66.612.65xyesBV $4.86 + 5yr PV of (ROE (TTM) 76.1% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$35.424.97xyes√(22.5 × EPS $11.47 × BVPS $4.86) — Graham's conservative floor
EV/EBITDA RelativeRelative——noEBITDA $0.10B × sector EV/EBITDA 12.0x
FCF YieldEarnings$27.726.36xyesFCF $3767.1M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$25.167.00xyesSBC-adj FCF $3.46B (FCF $3.77B − SBC $0.31B) capitalized at Kₑ
Ben Graham FormulaEarnings$370.160.48xyesEPS $11.47 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative——noRevenue $13.58B × sector P/S 2.5x
PEG Fair ValueRelative$375.970.47xyesEPS $11.47 × (PEG 1.5 × growth 21.8% (input: historical EPS growth)) → PE 32.8x
Earnings YieldEarnings$124.021.42xyesEPS $11.47 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

UnitRoleValuation basisRevenueReported profitValue evidenceStatus
Semiconductor Process Controloperatingenterprise$12.2b—withheldunresolved no unit value
Specialty Semiconductor Processoperatingenterprise$584.1m—withheldunresolved no unit value
PCB and Component Inspectionoperatingenterprise$750.4m—withheldunresolved no unit value

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

FieldValue
Net debt$4.2b
Net debt / NOPAT (after-tax)0.86x
Net debt / operating income (pre-tax)0.76x
Share count CAGR (buyback)-3.4%
Burning cashno

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

At $260.81 (as of June 27, 2026) the market pays roughly 10x company-wide mid-cycle operating income for KLA, which implies operating growth of about 8.1% per year for five years. The company just guided its process-control systems business to grow over 20% in 2026.

Fiscal Q3 2026 delivered non-GAAP EPS of $9.40, up 11.8%, on revenue of $3.42 billion, up 11.5%, with semiconductor process control at $3.08 billion, about 90% of the total. Advanced packaging revenue is projected to nearly double to roughly $1 billion in 2026.

KLA dominates the inspection-and-metrology niche of chip manufacturing, a position the relative and earnings methods say is undervalued. The risks are concentration and geopolitics: a small set of leading-edge customers and meaningful exposure to China export controls.

Bull Case

Look at how far the price sits below the methods, because the gap is unusually wide for a franchise this dominant. KLA trades at $260.81, and almost every valuation family lands above it. The reverse-DCF says the market pays roughly 10x company-wide mid-cycle operating income, which embeds operating growth of only about 8.1% a year for five years. Set that against the relative valuation near $554, the earnings-yield method near $382, the simple-excess-return method near $383, and an FCF-yield method near $296, and the pattern is consistent: the conservative-to-moderate frames all clear the price comfortably. The growth frames go higher still. When a near-monopoly compounder prices in single-digit growth, the burden of proof flips onto the bears.

The operating reality is running well ahead of that 8% bar. Fiscal Q3 2026 produced revenue of $3.42 billion, up 11.5% year over year, and non-GAAP EPS of $9.40, up 11.8%, both ahead of consensus. The semiconductor process-control segment, the core of the company, did $3.08 billion, about 90% of revenue and up 12.6%. Management guided the June quarter to $3.575 billion, raised its 2026 wafer-fab-equipment market view above $140 billion, and for the first time said 2027 growth should exceed 2026, with process-control systems expected to grow over 20% in 2026 and outpace the broader equipment market. A company guiding to 20%-plus growth in its core, priced for 8%, is the definition of a margin between expectation and reality.

The moat is what makes the growth durable. KLA is the leader in inspection and metrology, the step where chipmakers find defects before they ruin a wafer, and as nodes shrink and advanced packaging proliferates, the value of catching defects rises faster than the wafers do. The company funds that lead with heavy ongoing R&D and worldwide service, investing significant financial resources to offer a broad product range and maintain customer support centers globally (FY2025 10-K, accession 0000319201-25-000024). Advanced packaging, the part of the business tied to chiplets and high-bandwidth memory for AI, is set to nearly double to about $1 billion in 2026 from $635 million in 2025. Against peers like Teradyne, Coherent, and Nova, KLA's combination of process-control dominance, 60%-plus gross margins, and a share count shrinking about 3% a year through buybacks is the case for paying up. The price is not paying up.

Bear Case

The bear case starts with the customers KLA depends on, because the moat narrows to a handful of buyers. KLA states plainly that it is exposed to risks associated with a highly concentrated customer base, a concentration driven by consolidation and acquisitions in the semiconductor industry (FY2025 10-K, accession 0000319201-25-000024). The leading-edge logic and memory makers that buy KLA's most advanced tools number in the low single digits, and TSMC, Samsung, Intel, SK Hynix, and Micron are the names that matter. When one of them pauses or delays a fab build, KLA feels it immediately, with no diversified base to cushion the swing. The competitive disruption is not a new entrant; it is the bargaining power and capital-spending cycle of a few enormous customers.

The second competitor is the budget itself. KLA's own filing warns that customers can reduce their available budgets for process-control equipment by reducing inspection and metrology sampling rates (FY2025 10-K). That is the quiet threat: process control is essential, but customers control how much they buy by choosing how often to inspect. In a downturn they sample less, and KLA's revenue falls faster than wafer volumes do. The semiconductor equipment market is deeply cyclical, and the current up-cycle, WFE above $140 billion and AI-driven demand, is exactly the kind of peak that makes today's earnings look like a sustainable base when they may be a high-water mark.

Geopolitics is the variable with the most asymmetric downside. China has been a large share of equipment demand, and KLA flags that new export restrictions or new interpretations of existing rules could be material, disrupting its supply chain, product shipments, and ability to support existing customers of covered products (FY2025 10-K). A tightening of controls, or Chinese retaliation, removes a chunk of demand that does not come back. Layer on a leveraged balance sheet, net debt near $4.1 billion, and a beta well above the market, and the stock is built to fall hard if the cycle rolls over or the China door closes further. The price looks cheap against peak-cycle earnings; against a normalized trough it looks far less so.

Valuation

KLA must be valued on normalized earnings, because the trailing strip is distorted. The EDGAR trailing operating income reads far below the record-basis figure, a divergence the engine flags explicitly, so the inversion prices the company on its through-the-cycle margins, normalized operating income near $3.6 billion on a 27.6% mid-cycle margin, rather than the depressed trailing quarter. On that basis the market pays roughly 10x company-wide mid-cycle operating income, implying operating growth of about 8.1% a year for five years at an 11.6% cost of capital. That is a modest embedded assumption for a process-control leader.

The method families cluster well above the price once normalized, with two clear artifacts to discard. The relative method lands near $554 on a blended P/E, the earnings-yield and simple-excess-return methods near $382, residual income near $640 on an enormous trailing return on equity, and FCF yield near $296. The growth frames run higher, DCF perpetual growth and the Ben Graham formula reach into four figures because they extrapolate 14% to 30% historical growth, so treat them as directional rather than literal. The artifacts to ignore are earnings power value and EV/EBITDA relative, both of which collapse to near zero because they key off the distorted trailing EBIT and operating income, not the normalized figures; they are measurement errors, not valuations.

The honest synthesis is that KLA looks undervalued on normalized, mid-cycle earnings, with the price embedding growth well below what the company is guiding to. The caveat the bear case supplies is the cycle: that mid-cycle margin and normalized operating income assume the equipment cycle does not crater. Net debt near $4.1 billion is modest against the cash generation, interest coverage near 13x, so the balance sheet is not the risk. The risk is that the normalized base itself is being struck near a cyclical and geopolitical peak.

Catalysts

Fiscal Q3 2026 (reported April 2026) beat: non-GAAP EPS of $9.40, up 11.8% year over year, on revenue of $3.42 billion, up 11.5%. Semiconductor process control, about 90% of revenue, grew 12.6% to $3.08 billion, with an end-market mix roughly 62% foundry and logic and 38% memory. Management guided the June quarter to $3.575 billion and reaffirmed a calendar-2026 gross-margin target near 62%, absorbing a roughly 100 basis point headwind from elevated DRAM costs.

The demand outlook is the dominant catalyst. KLA raised its 2026 wafer-fab-equipment market view above $140 billion and, for the first time, said 2027 growth rates should exceed 2026, with process-control systems expected to grow over 20% in 2026 and outpace the broader market. Advanced packaging is the standout: revenue is projected to nearly double to roughly $1 billion in 2026 from $635 million in 2025, tied directly to AI chiplet and high-bandwidth-memory demand. Each quarterly print and any update to the WFE view will move the stock.

The swing factors to watch over the next 90 days are customer capital-spending plans at the few leading-edge foundries and memory makers, any change in China export-control policy, and the pace of buybacks against a share count already shrinking about 3% a year. Memory pricing and DRAM cost trends also feed the margin guide directly.

Sources: Yahoo Finance (KLA Q3 2026 earnings), BigGo Finance (Q3 2026 call detail), StockTitan/SEC 8-K, The Globe and Mail, The Motley Fool (Q3 2026 transcript).

Peer Cohorts (Per Segment, With Filing Citations)

Semiconductor Process Control (reported)

Specialty Semiconductor Process (reported)

PCB and Component Inspection (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

View the full interactive KLAC report on boothcheck