KLA Earnings: Solid Quarter in Soft Market; We Raise Our Valuation on Higher Long-Term Forecasts

We raise our fair value estimate for wide-moat KLA to $510 per share, from $410, following the firm’s fiscal first-quarter results. Our fair value estimate raise comes largely due to upward revisions to our long-term growth expectations for both the wafer fabrication equipment market and KLA. We viewed KLA’s fiscal first-quarter results positively against a challenging market environment. WFE demand has been soft throughout 2023 behind weaker end-consumer demand and severe inventory digestion at memory chipmakers. While KLA is vulnerable to these market cycles, we see long-term growth drivers for the firm and are expecting results to recover in calendar 2024 and into 2025. We see shares as undervalued.