KLA Earnings: Our Long-Term Recovery Thesis Is Intact, but Shares Look Rich

We maintain our $510 fair value estimate for shares of wide-moat KLA after the firm’s December-quarter results aligned with our longer-term recovery expectations for semiconductor equipment spending. KLA’s results were right in line with our estimates for the quarter. The firm’s March-quarter guidance missed our model, but this resulted from a large deal pushing out into the June quarter and we don’t see it reflecting fundamental weakness. Overall, we expect KLA to grow in line with the wafer front-end equipment market in calendar 2024 after a downturn that shrank revenue in calendar 2023. Despite the near-term weaker guidance sending shares down 6% after hours, we see shares as overvalued. We believe improved results in 2024 and 2025 are already baked into the stock, and our expectations for the firm’s fundamentals going forward don’t support the current price.