KLA Corp

KLA (KLAC) was our worst performer in the month, despite reporting solid operating results and raising full-year guidance. Similar to the other semiconductor and AI-related stocks we own, such as Applied Materials (AMAT), Lam Research (LRCX), and Jabil (JBL), a rotation out of the AI-trade was the main driver for July’s underperformance of these stocks.

KLA Corporation is the dominant supplier of process control and yield management equipment to the semiconductor industry, holding a market share of around 55%. The company plays a crucial role in ensuring that AI chips, which are becoming larger and more complex, are manufactured without faults. KLA's significant investment in research and development, which exceeds the total process-control revenue of many rivals, underpins its industry-leading gross margins and high-quality service. With expectations of $1bn in advanced packaging revenue for 2026, KLA is well-positioned to benefit from the growing demand for inspection and testing in chip manufacturing.

KLA Corporation is a dominant provider of process-control and metrology equipment to the semiconductor industry, with a high market share that becomes more entrenched at each node transition. Metrology is the precision measurement and evaluation of nanoscale features; as chip-making and architecture grow more complex, the economic cost of yield loss rises sharply, which makes KLA's tools effectively non-discretionary for leading-edge manufacturers. Those tailwinds, combined with prudent management, support strong dividend growth.

KLA has benefited from stronger sentiment toward semiconductor equipment and renewed confidence in its competitive positioning. Investors responded positively to its leadership in inspection technologies, with long-term demand drivers outweighing near-term cyclicality. The portfolio maintains high conviction behind companies like KLA that are seen as beneficiaries of AI-related investments, indicating a robust outlook for the company in the context of increasing demand for semiconductor solutions.

KLA delivered another beat-and-raise quarter, supported by strong growth in its core process-control business, services and advanced packaging, while management once again upgraded its expectations for industry spending on wafer fabrication equipment (WFE). Importantly, KLA’s backlog rose materially, and management expects growth to accelerate into 2027 as new fab capacity comes online and spending broadens across leading-edge logic, DRAM/HBM and advanced packaging.

KLA supplies the process-control tools that advanced chipmaking cannot do without. As wafers become more valuable and tolerances tighter, inspection intensity rises. Recurring service revenues and modest capital requirements allow much of that growth to reach shareholders. The company is positioned to benefit from the increasing demand for precision in semiconductor manufacturing, making it a valuable player in the AI complex.

KLA (KLAC) was another large contributor. Similar to other semiconductor equipment companies, KLA continues to see broad-based growth across all segments and financial metrics. We believe that strong demand for AI semiconductor chipsets, coupled with secular technological transitions and federal stimulus from the CHIPS Act, should continue to provide a favorable backdrop for the company.

KLA (KLAC) was another large contributor. Similar to other semiconductor equipment companies, KLA continues to see broad-based growth across all segments and financial metrics. We believe that strong demand for AI semiconductor chipsets, coupled with secular technological transitions and federal stimulus from the CHIPS Act, should continue to provide a favorable backdrop for the company.

KLA, a provider of process control and yield management semiconductor equipment, benefited from strong earnings. The company enables and supports the AI infrastructure buildout, positioning it well within the growing AI sector. The Fund's investment in KLA reflects confidence in its role as a key player in the semiconductor industry, particularly as demand for AI applications continues to rise.

KLA Corporation has been a significant contributor to the Strategy’s returns, benefiting from effective stock selection within the semiconductor sector. The company is well-positioned to capitalize on the ongoing trends in technology, particularly as AI applications gain traction. The manager believes that KLA Corporation's strong market position and its role in the semiconductor industry provide a sustainable competitive advantage, making it a valuable addition to the portfolio.