QS Research · Michael Burry's Scion Capital analyst template · 2006
KLA CORP (KLAC)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case -4% · downside -17% · upside +39%
The market is not missing the AI-driven demand step-up — Q1 FY27 revenue of $4.136B rose 29% YoY and beat guidance, with Q2 guided to $4.7B — but it is still paying a premium multiple for it. On the section 13 TTM base ($6.80B EBITDA, $4.63B net debt and leases, 1.303B shares), the most likely value at AMAT's 25.9x is $131.6 (-4%), LRCX's 22.5x gives $113.9 (-17%), and ASML's 37.1x gives $190.1 (+39%); the base uses current TTM earnings, not a cycle average. That does not meet the long rule (base must be at least +30%), and the downside is too contained for a short, so this is a watch: a high-quality franchise with strong cash generation and a $12.57B backlog, but no margin of safety at 26.8x EV/EBITDA and a 2.3% FCF yield. The market is pricing the growth; the call needs either a lower entry price or evidence that the backlog and advanced-packaging ramp lift the earnings base by a third without multiple expansion.
Key numbers
- Share price: $136.56
- Market cap: $177.93B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $14.51B
- EV / EBITDA (TTM): 26.8x
- P/E (TTM): 33.8x
- Price / book: 27.28x
The 15 boxes
- ✓ 1. Long-form business notes
KLA sells process control (inspection, metrology, software) and process-enabling equipment plus service contracts into wafer, reticle, chip, packaging and PCB manufacturing; FY2026 revenue was split across three reportable segments and services were about 23% of total revenues, with roughly 87% of revenue earned outside the U.S. Revenue ran from $6.92B in FY2021 to $13.58B in FY2026, with net income of $4.83B and operating cash flow of $4.14B against capex of only $375.9M in FY2026. Backlog nearly doubled to $12.57B at June 30, 2026 from $7.86B a year earlier, attributed to the AI infrastructure buildout. The business changed shape between the oldest and newest 10-K here: FY2021 reported four segments including PCB, Display and Component Inspection plus 'Other' after the February 2019 Orbotech acquisition, while FY2026 reports three segments with no display segment.
- ✓ 2. Competitive advantage
KLA looks like a scale-and-integration advantaged franchise rather than a patent-protected one: revenue rose from $6.92B (FY2021) to $13.58B (FY2026), net income from $2.08B to $4.83B, and computed net margin stayed in a 28%-36% band every year of the window, with operating cash flow of $4.14B against only $375.9M of capex in FY2026. The 10-K frames the moat as customer process integration ("automated capabilities into their existing development and manufacturing processes"), a broad product line plus worldwide service and R&D spend, not any single patent (over 9,100 active patents as of June 30, 2026, but "no single patent... is essential to us"). It competes with Applied Materials, ASML, Hitachi High-Tech, Lasertec and Onto Innovation, some with greater resources, and admits any loss of position hits prices and gross margin. Two structural soft spots: a "highly concentrated customer base" and China at 30% of FY2026 revenue, where export controls are said to help China-based competitors take share.
- ✓ 3. 10-Q takeaways
Q1 FY27 (quarter ended 2026-09-30) showed strong sequential and year-over-year growth: revenue $4.136B, +13% vs Q4 FY26 and +29% vs Q1 FY26, with gross margin 61.9%. Net income was $1.55B / $1.18 diluted, helped by $30.3M net other income that included an $18.5M equity fair value loss, while operating cash flow was $1.53B. The 10-Q gives only a qualitative outlook for continued revenue growth and flags IP protection/AI risk; no numeric guidance, inventory balance, or backlog figure was provided.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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