KLA CorporationKLACNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $914.28 per share(market-calibrated)

-36.6%

Upside to Fair Value

Current

$1,441.35

Pure Model

$738.59

Fair Value

$914.28

Bull Case

$958.17

Bear Case

$546.02

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor KLAC

✓

CapEx already efficient

CapEx at 2.46% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 38.26% — below the sector mature average of 43.11%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $8.7B (38.26% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 10.12% revenue growth in Year 1, fading to 3.75% by Year 5 and 3.75% by Year 10. Revenue reaches $22.9B by Year 10 (vs $12.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $531.20/share (14.7x terminal FCF) while exit multiple gives $945.99/share (35.1x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $1,441.35. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 79.83% indicates efficient cash generation. FCF reaches $7.6B by Year 10 (33.05% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.46

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.05%

Cost of Debt

Pre-tax Cost of Debt4.03%

Tax Rate12.55%

After-tax Cost of Debt3.53%

Equity Weight (E/V)96.92%

Debt Weight (D/V)3.08%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (96.92% × 11.05%) + (3.08% × 3.53%)

= 10.82%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$13.4B	$17.6B	$19.0B	$20.5B	$22.9B
EBIT	$5.1B	$6.7B	$7.3B	$7.8B	$8.7B
Tax	$643M	$847M	$913M	$983M	$1.1B
NOPAT	$4.5B	$5.9B	$6.4B	$6.9B	$7.7B
+ Depreciation	$420M	$553M	$597M	$643M	$718M
- Capex	$330M	$435M	$469M	$505M	$564M
- Δ NWC	$369M	$484M	$206M	$222M	$248M
Free Cash Flow	$4.2B	$5.5B	$6.3B	$6.8B	$7.6B
Discount Factor	0.902	0.735	0.598	0.487	0.358
Present Value	$3.8B	$4.1B	$3.8B	$3.3B	$2.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.6B

Terminal Growth Rate3.75%

WACC10.82%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$111.0B

PV of Terminal Value$39.7B

Exit Multiple Method

Year 10 EBITDA$9.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$265.1B

PV of Terminal Value$94.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$34.9B

PV of Terminal Value$39.7B

Enterprise Value$74.7B

(-) Net Debt$4.0B

Equity Value$70.7B

Shares Outstanding133M

Price per Share$531.20

Exit Multiple Method

PV of Projected FCFs$34.9B

PV of Terminal Value$94.9B

Enterprise Value$129.9B

(-) Net Debt$4.0B

Equity Value$125.8B

Shares Outstanding133M

Price per Share$945.99

Pure Model Fair Value

$738.59

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
8.82%	$893.49	$913.15	$936.70	$965.40	$1,001.16
9.82%	$797.71	$810.89	$826.24	$844.35	$866.03
10.82%	$718.82	$728.05	$738.59	$750.74	$764.89
11.82%	$652.15	$658.84	$666.36	$674.88	$684.60
12.82%	$594.77	$599.75	$605.28	$611.46	$618.40

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$546.02

-62.1% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.82

Base Case

$738.59

-48.8% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.46

Bull Case

$958.17

-33.5% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.24

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth10.12%

Year 3 Revenue Growth10.07%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin38.26%

Terminal EBIT Margin43.11%

Tax Rate12.55%

Historical Capex / Rev2.46%

NWC / Revenue30.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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