KLAC, AMAT & ASML: Lords of the Semiconductor Equipment Domain
Investology Semiconductor Equipment Research
April 15, 2025
INVESTMENT SUMMARY
We present our comprehensive analysis of the three titans that control the technological destiny of global semiconductor manufacturing: KLA Corporation (KLAC), Applied Materials (AMAT), and ASML Holding (ASML). These companies don’t just make equipment; they define the boundaries of what’s physically possible in chip production.
Let’s be unequivocal: There is no credible path to semiconductor advancement without these three companies. Every iPhone, NVIDIA GPU, and data center processor exists because ASML, Applied Materials, and KLA permit it to. Full stop.
| Company | Target Price | Rating | Upside | Investment Case |
|---|---|---|---|---|
| AMAT | $320 | OVERWEIGHT | 17% | Diversified exposure at reasonable valuation |
| ASML | €1,350 | OVERWEIGHT | 22% | Monopolistic positioning with expanding moat |
| KLAC | $870 | EQUAL-WEIGHT | 8% | Exceptional profitability but fully valued |
Bottom Line: We strongly favor ASML for those seeking pure exposure to leading-edge technology, while Applied Materials represents our top value pick. KLA offers extraordinary profitability but limited upside at current valuations.
INDUSTRY DYNAMICS: MARKET POSITIONING
The semiconductor equipment market has evolved into a triumvirate where three companies control the most critical stages of manufacturing with minimal overlap:
- ASML has achieved a complete monopoly in EUV lithography. Their EUV scanners, focusing 13.5nm wavelength light, represent extraordinarily complex machines with no serious competitor in sight.
- Applied Materials provides tools for nearly every step, from deposition to etching. Recently overtaken by ASML in revenue due to the growing importance of lithography, Applied still captures significant revenue from both advanced and legacy nodes.
- KLA dominates inspection and metrology with four times the market share of its nearest competitor, becoming more entrenched as chip complexity increases.
FINANCIAL ANALYSIS
Revenue & Growth
| Company | Revenue | YoY Growth | Est Forward Growth |
| AMAT | $27.2B | 2% | 6-8% |
| ASML | €28.3B | 2.6% | 15% |
| KLAC | $10.9B | 12% | 7-9% |
ASML and Applied Materials lead in absolute terms, but KLA’s growth rate stands out, with ASML expected to accelerate.
Profitability
| Company | Gross Margin | Net Margin | ROE |
| AMAT | 47.5% | 26% | 35% |
| ASML | 51.3% | 26.8% | 47% |
| KLAC | 60.3% | 29.6% | 97% |
KLA exhibits exceptional profitability, while ASML maintains high margins despite substantial R&D investment.
Valuation
| Company | P/E (Trailing) | P/E (Forward) | PEG Ratio |
| AMAT | 16-17x | ~18x | <1.1 |
| ASML | ~30x | 23-24x | ~1.5 |
| KLAC | 24-25x | ~20x | ~1.1 |
Applied Materials trades at a significant discount, ASML commands a premium for its irreplaceability, and KLA is moderately valued.
TECHNOLOGICAL LEADERSHIP
R&D Investment
| Company | R&D Spending | % of Revenue |
| AMAT | $3.2B | 12% |
| ASML | €4.3B | 15% |
| KLAC | $1.3B | 12% |
ASML’s spending reflects the extreme complexity of lithography development.
Core Technology Initiatives
- ASML’s High-NA EUV systems enable 2nm node manufacturing.
- Applied Materials’ Centura Sculpta technology enhances circuit density economically.
- KLA’s AI-powered inspection evolves from defect detection to defect prediction, boosting yields.
THE CHINA EQUATION: GEOPOLITICAL HEADWINDS
| Company | China Exposure |
| AMAT | 37% revenue |
| ASML | 41% shipments |
| KLAC | 33% revenue |
U.S.-China semiconductor tensions significantly risk revenue streams, particularly due to export restrictions. However, domestic initiatives such as the CHIPS Act provide counterbalances.
INVESTMENT THESIS
ASML: The Monopolist’s Premium (OVERWEIGHT, Target €1,350)
- Irreplaceable EUV lithography systems, with High-NA EUV rollout from 2026.
- Upside: €1,500 (accelerated adoption); Downside: €950 (expanded export controls).
Applied Materials: Diversified Value (OVERWEIGHT, Target $320)
- Broad exposure, strong services business, advanced packaging growth.
- Upside: $360 (memory recovery, AI capex); Downside: $240 (chip demand weakness, China restrictions).
KLA: The Profitable Specialist (EQUAL-WEIGHT, Target $870)
- Strong profitability, critical role in yield improvements, limited growth scope.
- Upside: $950 (accelerated inspection spending); Downside: $720 (weak spending on advanced nodes).
CONCLUSION
The semiconductor equipment industry faces formidable challenges as scaling encounters physical limits. ASML, Applied Materials, and KLA remain indispensable for future semiconductor advancement, benefiting from growing demand driven by AI and computing.
Our Take:
- Aggressive Growth Investors: Overweight ASML
- Value Investors: Overweight Applied Materials
- Conservative Investors: Equal-weight all three
These companies will continue defining what chips can be produced, benefiting significantly from sustained demand.
This document is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.