KLA Corporation (KLAC) Presents At Goldman Sachs Communacopia + Technology Conference 2025 Transcript

KLA Corporation reported a strong June quarter and raised September guidance, with 2025 performance exceeding expectations, driven by compelling investment in leading-edge logic (2nm node) and significant growth in High Bandwidth Memory (HBM) and advanced packaging, which is projected to reach $925 million in revenue this year. The company's process control intensity is benefiting from the AI inflection, increasing die sizes, and complex HBM stacking, pushing KLA's share of WFE towards 8% this year, ahead of its 2026 target. KLA anticipates mid-single-digit traditional WFE growth in 2025, with continued growth expected in 2026, particularly in leading-edge and HBM-driven DRAM, while forecasting logic/foundry to comprise over two-thirds of its revenue due to higher process control intensity. The company maintains strong financial execution with 62.5% gross margins and operating margins above its long-term target, alongside a commitment to 15% annual dividend growth and returning 85% of free cash flow.

Analysis

KLA Corporation's management presented a highly confident outlook, underpinned by strong execution and structural semiconductor industry trends. The company reported a solid June quarter and raised its September guidance, indicating that 2025 is shaping up ahead of initial expectations. This performance is primarily driven by accelerating investments in leading-edge logic at the 2-nanometer node, the proliferation of High Bandwidth Memory (HBM), and a significant inflection in advanced packaging. Advanced packaging revenue guidance was notably raised to $925 million for the year, a substantial increase from just over $500 million in the prior year. These technology shifts are increasing process control intensity—the need for inspection and measurement—due to larger die sizes, complex 3D stacking in HBM, and the high cost of failure in integrated systems. Consequently, KLA is outperforming the broader market, with its share of Wafer Fab Equipment (WFE) spending trending towards 8% this year, meaningfully ahead of its 2026 target of 7.25%. The company projects mid-single-digit growth for traditional WFE in 2025 and continued growth into 2026, with its revenue mix favorably shifting to over two-thirds from the logic/foundry segment, where process control intensity is highest. Financially, the model is robust, with gross margins guided at 62.5% and operating margins tracking above the company's long-term targets, fueling a strong capital return program that includes a 15% targeted annual dividend growth and returning 85% of free cash flow to shareholders.

Key Decisions for Investors

• Investors should recognize that KLA is structurally benefiting from the AI-driven increase in chip complexity, which is translating into tangible market share gains against the broader wafer fab equipment (WFE) market, with the company trending towards 8% share ahead of its 2026 target.
• Monitor the advanced packaging revenue line, guided to reach $925 million this year, as a key performance indicator of continued momentum, alongside the resilient double-digit growth in the services business which provides a stable, high-margin revenue stream.
• The combination of operating margins exceeding long-term targets and a firm commitment to return 85% of free cash flow to shareholders provides a strong financial foundation and a compelling capital return narrative that should be factored into valuation models.
• Given management's outlook, consider that KLA's favorable exposure to leading-edge logic and HBM positions it to potentially outgrow the overall WFE market, but remain watchful for any sharper-than-expected correction in China-related spending which the company expects to decline.