Stock Analysis & Valuation KLA Corporation (0JPO.L)

• Previous Close: £1,452.38
• Sector Valuation Confidence Level: Low

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	404.50	-72
Intrinsic value (DCF)	787.82	-46
Graham-Dodd Method	55.20	-96
Graham Formula	718.30	-51

Strategic Investment Analysis

Company Overview

KLA Corporation (0JPO.L) is a global leader in process control and yield management solutions for the semiconductor and electronics industries. Headquartered in Milpitas, California, KLA specializes in wafer inspection, metrology, and defect detection systems critical for semiconductor manufacturing. The company operates through four key segments: Semiconductor Process Control, Specialty Semiconductor Process, PCB/Display/Component Inspection, and Other. KLA's advanced technologies enable chipmakers to enhance production efficiency, reduce defects, and improve yields—essential factors in an industry driven by precision and miniaturization. With a strong presence in semiconductor fabrication, PCB manufacturing, and display production, KLA serves leading foundries, integrated device manufacturers (IDMs), and OEMs worldwide. The company's rebranding from KLA-Tencor in 2019 reflects its continued innovation in process-enabling solutions. As semiconductor demand grows across AI, IoT, and 5G applications, KLA remains a critical enabler of next-generation chip production.

Investment Summary

KLA Corporation presents a compelling investment case due to its dominant position in semiconductor process control—a high-margin, mission-critical segment. With a market cap of ~$99B, strong revenue ($9.81B), and robust net income ($2.76B), KLA benefits from recurring revenue streams via equipment servicing and consumables. Its high beta (1.397) suggests sensitivity to semiconductor cycles, but its essential role in advanced node manufacturing provides resilience. Risks include customer concentration (reliance on major foundries like TSMC) and cyclical capex fluctuations in the semiconductor industry. The dividend ($6.75/share) and consistent cash flow ($3.31B operating cash flow) add stability. Investors should monitor geopolitical risks affecting semiconductor supply chains and competition in metrology from emerging players.

Competitive Analysis

KLA holds a near-duopoly in semiconductor process control alongside ASML, with its defect inspection and metrology tools being industry standards. Its competitive moat stems from deep R&D (evidenced by high margins—~28% net income/revenue) and entrenched customer relationships. Unlike lithography-focused ASML, KLA dominates the post-lithography segment, ensuring defect-free wafers. The company's software integration (e.g., Klarity® defect analysis) creates sticky ecosystems. However, Applied Materials and Lam Research compete in adjacent process-enabling markets, while smaller rivals like Onto Innovation challenge niche metrology segments. KLA's scale allows it to outspend competitors in R&D (~15% of revenue), but it faces pricing pressure in PCB/display markets from Asian players like Camtek. Its acquisition strategy (e.g., Orbotech in 2019) expands into PCB/advanced packaging, diversifying beyond core semiconductor exposure. Long-term threats include potential disruption from computational metrology or in-situ inspection technologies.

Major Competitors

• ASML Holding NV (ASML.AS): ASML dominates extreme ultraviolet (EUV) lithography—complementary to KLA's inspection focus. While ASML's monopoly in EUV gives it pricing power, KLA holds stronger margins in process control. ASML's larger scale ($38B revenue) and capex cyclicality contrast with KLA's more diversified end-markets.
• Applied Materials Inc (AMAT): Applied Materials competes in deposition/etch but lacks KLA's inspection specialization. Its broader product portfolio (including display equipment) overlaps with KLA's PCB segment. Applied's larger size ($26B revenue) provides cross-selling opportunities, but KLA's process control leadership remains unchallenged.
• Lam Research Corporation (LRCX): Lam excels in etch/clean but partners with KLA for integrated solutions. Its focus on wafer fabrication tools (vs. KLA's inspection) creates synergies. Lam's ~$17B revenue and strong logic/foundry exposure mirror KLA's customer base, but it lacks KLA's yield-management software depth.
• Onto Innovation Inc (ONTO): Onto is a smaller metrology rival ($1.8B market cap) with strengths in advanced packaging. It competes in niche areas like nano-inspection but lacks KLA's full-stack capabilities. Onto's lower R&D budget limits its ability to disrupt KLA's core markets.
• Camtek Ltd (CAMT): Camtek focuses on PCB and semiconductor inspection but at lower price points. Its ~$1.5B market cap reflects a niche position. While cost-competitive in Asian markets, Camtek lacks KLA's R&D scale and foundry-level precision.