KeyBanc Reiterates Sector Weight Rating on KLA (April 8)

KeyBanc analyst Steve Barger reiterated a Sector Weight rating on KLA Corporation (NASDAQ: KLAC).

“Semicap Coverage Update: Should cycle narratives fade, our positioning would likely become more positive toward KLAC and more cautious on TER and our EMS/OSAT names; We think KLAC has multiple positive angles highlighted at its recent Analyst Day, but we also think the market mostly appreciates those positive storylines at current prices.

KLAC dominates the Process Control market (56%+ market share, >6x higher than nearest competitor).

We think PC should be an area of WFE outgrowth given technical difficulty and cost increases as advanced nodes expand to packaging applications.

Further, as KLAC’s installed base of tools continues to grow, so too does its average tool lifetime – reaching >24 years as of 2025.

With a >80% service contract attach rate KLAC is projecting a 13-15% forward Services revenue CAGR to complement fundamental tool demand from its highend customer base.

Should the AI narrative moderate, we think that service durability could become more important to the investment thesis.

Given the above dynamics and its best-in-class financial profile highlighted by >60% gross margin, 43-45% operating margin, and 90%+ FCF conversion, we think KLAC would likely trade more defensively in a volatile or more negative environment.

For now, we think investor clarity on essentially all of these positives is the driver of KLAC’s premium valuation.”

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