I’ve been looking at KLA Corp (KLAC).
I ran my DCF and got:
Bear: $372
Base: $612
Bull: $831
Current price: around $187
When even the bear case is roughly 2x the market price, I am curious about what I may be missing or which assumption is too optimistic.
The basic thesis is that KLA continues benefiting from more complex semiconductor manufacturing, especially leading-edge chips, HBM, advanced packaging and its growing installed base, but growth gradually slows from here.
Latest numbers are still pretty strong. Revenue was $3.7B, up 15.2% YoY, FCF was $817M and net cash around $2.1B. Semiconductor Process Control grew about 11.9% and services about 16.5%. Capex was also only around 2.8% of revenue.
At around $187, I get something close to -15.3% annual revenue growth implied by the current price. Over the last five years, KLAC grew revenue at roughly 14.4% a year.
Obviously past growth doesn’t mean future growth will continue at anything close to that rate. But going from +14% historical growth to something like -15% implied growth feels like a pretty big change in expectations.
Is a the market expecting semiconductor capex to fall hard after the AI/HBM cycle? China/export restrictions? Margins coming down materially? Some structural risk to KLA’s process-control position? Or are my DCF assumptions simply too generous?
Would be especially interested to hear from anyone who follows semiconductor equipment.
EDIT: I found the root cause and it is rather embarrassing! KLAC did a 10-for-1 split in June. After correcting it I now get roughly:
Bear: $37
Base: $61
Bull: $83
So my original $372/$612/$831 figures were rubbish.