KLA (KLAC) Q1 2025 Earnings Call Transcript

KLA’s print is less about a one-quarter beat than a re-acceleration of the process-control cycle at the exact point where customers are forced to spend more per wafer. The key second-order read is that leading-edge complexity is now pulling mix toward tools and services with recurring attach, which should keep revenue growth outpacing broad WFE even if the overall semi capex backdrop only improves modestly. That matters because KLA’s margins are being pressured more by temporary mix than by structural demand weakness, so any move up in advanced node and service content can drop through quickly once packaging mix normalizes.

The China reset is the biggest hidden lever. A lower percentage of sales from China is not inherently bearish here; it likely means the business is becoming less dependent on a low-visibility, policy-sensitive demand pocket and more exposed to higher-intensity leading-edge spending elsewhere. The risk is a near-term optically slower growth rate if China dollars flatten or drift down while the mix shifts, but that is a better quality of growth if the offset is concentrated in high-margin service, metrology, and reticle inspection.

The underappreciated beneficiary is the broader AI semiconductor supply chain, especially TSMC and Nvidia, because KLA is effectively confirming that AI is not just raising wafer starts but raising inspection intensity. Intel is a more nuanced read: any 3nm/2nm ramp or packaging push increases process-control spend, but execution slippage there would mainly shift timing, not destroy the secular need for tools. The real contrarian point is that the market may still be underestimating how much of KLA’s 2025 upside comes from architecture transitions rather than simple WFE growth, which argues for durability in the earnings power even if headline capex only stays mid-single digits.