KLA Corporation

Methodology

KLA Corporation's semiconductor process control equipment generates highly cyclical earnings tied to chip capital spending cycles. The company's dominant position in wafer inspection and metrology creates recurring service revenue. This calculation is challenging given extreme cyclicality—normalized assumptions about mid-cycle equipment spending are essential, while peak cycle earnings dramatically overstate sustainable profitability.

Methodology

KLA's PEG ratio swings wildly across semiconductor cycles, often appearing cheap during recoveries but potentially signaling peak conditions. The company's technology leadership and increasing inspection intensity provide long-term growth drivers. For semiconductor equipment, PEG based on cyclical growth is misleading—valuation should focus on normalized mid-cycle profitability and long-term secular demand trends.

Methodology

KLA pays a meaningful dividend and substantial buybacks reflecting strong cash generation during up-cycles. The company balances capital returns with R&D investments and cycle preservation. PEGY provides some context, though for semiconductor equipment, cycle positioning and long-term spending trends matter far more than dividend-adjusted metrics given earnings volatility.