KLA Earnings: Good End to the Fiscal Year in a Soft Market; Maintain $410 Fair Value Estimate

We maintain our $410 per share fair value estimate for wide-moat KLA after it reported strong fiscal fourth-quarter results and good fiscal first-quarter guidance that fit our model. Front-end wafer fabrication equipment, or WFE, is in the midst of a downturn in calendar 2023, with both memory and logic chipmakers reducing spending with lower end demand. However, KLA’s services revenue grew nicely in the quarter, showing continued use by customers despite lower capital expenditure, which mirrored good results from peer Lam Research last night. With a dominant position in the process diagnostic and control market that results in a wide moat rating, we’re confident KLA will capture demand when the WFE market rebounds. We find valuation challenging at the moment, and would recommend investors wait for a pullback before buying in.