KLA Corporation (KLAC) Stock Analysis

KLA’s principal competitive advantage is its dominant position in semiconductor process control, where it holds over 56% global market share—more than four times that of its nearest competitor. This leadership is especially pronounced in optical and unpatterned wafer inspection, where KLA’s share exceeds 85%. The company’s technological edge is reinforced by sustained high R&D investment (typically 11–13% of revenue), enabling rapid innovation and a broad, differentiated product portfolio. KLA’s tools are deeply embedded in customer manufacturing processes, creating high switching costs and long product lifecycles.

Relative to rivals such as Applied Materials, ASML, and Onto Innovation, KLA’s focus is narrower but deeper: it dominates the inspection and metrology segments, which are increasingly critical as chip geometries shrink and defect tolerances tighten. Its service business, accounting for 22% of revenue, is highly recurring and less cyclical than equipment sales, supported by a large installed base and proprietary technology that limits third-party servicing.

Weaknesses include customer concentration—Taiwan Semiconductor Manufacturing Company alone accounts for nearly 20% of revenue—and exposure to cyclical capital spending. However, KLA’s scale, intellectual property portfolio (8,500+ active patents), and entrenched customer relationships provide a durable moat. The company’s culture emphasizes operational discipline and customer partnership, supporting consistently high margins (operating margin: 42%) and returns on equity (103%), well above industry averages.