KLA Enjoys Resilient Demand Despite Supply Headwinds; Shares Undervalued Relative to $396 FVE

KLA reported fiscal third-quarter sales above the midpoint of management’s guidance and in line with our estimates, led by continued strength in the foundry and logic segments and higher memory spending. Consistent with KLA’s peers and our internal estimates, management expects the wafer fab equipment market to top the $100 billion mark in calendar 2022 (up from $92 billion in 2021). Although the firm is dealing with supply chain constraints, management maintains its view that KLA will increase revenue over 20% in calendar 2022. KLA’s leading position in process diagnostic and control has served it well, as the firm is highly leveraged to the strategic research and development investments by customers for leading-edge process technologies across all chip types. We are maintaining our $396 fair value estimate for wide-moat KLA and think the shares look attractive at current levels.