Microsoft of Metrology and Inspection: Oppenheimer Initiates KLA Corp. with a ‘Perform’ Rating

Oppenheimer analysts recently initiated coverage on KLA Corporation (KLAC), a significant player in the semiconductor process control tools sector, assigning a Perform rating with a price target of $750.

The investment bank likens KLA to the “Microsoft of metrology and inspection,” emphasizing the company’s dominant position in a market primarily controlled by five companies that together represent 80% of the industry’s total revenue.

KLA’s critical role in the semiconductor industry is highlighted by its ability to address the growing bottlenecks in AI compute demand, which is doubling every six months, while hardware improvements occur only every two years. This imbalance contributes to a structural shortage of advanced semiconductors and the necessary production tools.

As the industry transitions to smaller nodes and advanced architectures, such as gate-all-around (GAA), the demand for KLA’s tools has surged. The complexity of maintaining chip quality has driven a 50% increase in critical inspection layers and a 30% rise in high-end film metrology layers.

Despite KLA’s substantial size and profitability, which somewhat limits the potential for unexpected upside, the company has consistently outperformed revenue estimates over the past three years, including during market downturns and amid export restrictions.

KLA has seen impressive stock growth, particularly following the launch of ChatGPT in late 2022, with a 93% increase compared to the S&P 500’s 40% rise. However, the 2025 consensus revenue estimate has only risen by 16%.

Consequently, the stock’s price-to-earnings (P/E) and revenue multiples have climbed to 20-30% above their five-year averages. While KLAC has retraced 15% from its peak, it has generally been less affected than competitors like Applied Materials, Lam Research, and ASML.

Oppenheimer points out that KLA’s strong fundamentals and anticipated growth are mirrored in its current valuation, which stands at 25.5 times its estimated earnings per share for 2025 and 20.5 times its enterprise value to EBITDA.

The analysts noted, “Our $750 discounted cash flow price target is close to the current price and 10% above the pre-ChatGPT peaks. We would adopt a more favorable view if forecasts improve or if volatility provides an appealing entry point, as has historically been the case in the wafer fabrication equipment sector.”