Castlefield Stock Story - KLA Corporation

The world’s most advanced computer chips depend on a company most people have never heard of. In this latest Castlefield Stock Story, Investment Analyst introduces KLA Corporation. 

KLA Corporation, a Silicon Valley business listed on Nasdaq, makes the inspection and process-control systems that help semiconductor manufacturers detect microscopic production defects before they become costly failures. Founded in 1976 and celebrating 50 years of innovation in 2026,[1] KLA is owned in our TM Castlefield Thoughtful World Equity Fund.

Making a computer chip involves hundreds of exacting steps performed on a silicon disc called a wafer. If manufacturers aren’t careful, a speck of dust or a tiny printing error can ruin a whole batch partway through production. KLA’s systems act like extraordinarily powerful digital magnifying glasses: they scan wafers for defects too small for the human eye to see, allowing manufacturers to correct problems quickly.

Although KLA does not manufacture chips itself, its technology helps customers improve production yields, limit waste and avoid the cost of defective products.

The company also inspects the photomasks used to print circuits and checks printed circuit boards before they leave the factory. Although KLA does not manufacture chips itself, its technology helps customers improve production yields, limit waste and avoid the cost of defective products.

As chips become smaller and more complex, inspection becomes harder and more valuable. KLA works closely with leading manufacturers to develop the hardware, software and services needed for advanced wafer, reticle (lithographic template), integrated-circuit, packaging and circuit-board production.

KLA controls more than half the global market for semiconductor process control and inspection.[2] Its equipment is involved in the production of almost every advanced semiconductor used in smartphones, laptops, cars and data centres. This entrenched position resembles that of ASML, the Dutch semiconductor equipment company we featured in our August Stock Story.

KLA earns revenue by selling inspection equipment to semiconductor manufacturers, with individual systems costing millions of dollars. It then receives recurring income from maintenance, software upgrades and spare parts over the equipment’s working life. This model gives KLA exposure to growth in semiconductor manufacturing without the capital burden of building and operating chip factories.

Demand for KLA’s tools is supported by investment in new chip-making capacity for AI, data centres and consumer electronics. Major customers such as Intel and Samsung are investing heavily in production equipment. Governments and manufacturers are also seeking more geographically diverse supply chains, rather than relying on Taiwan’s TSMC.

The company has just announced financial results for the first quarter of its financial year. The results surpassed Wall Street expectations.

KLA’s competitive position is reinforced by the technical difficulty of replacing its systems. Because inspection is essential and failures are expensive, customers place a high value on reliability and performance. That gives the company pricing power and creates high barriers to entry for competitors.

The company has just announced financial results for the first quarter of its financial year. The results surpassed Wall Street expectations. Senior management also upgraded its earnings forecasts for the quarter we are now in.

From a sustainability standpoint, semiconductor manufacturing is resource-intensive, consuming substantial amounts of energy, water and chemicals. KLA and its customers also rely on critical minerals like copper, cobalt, tungsten and gold being dug out of the ground. Labour standards, health and safety, responsible sourcing and oversight of third-party suppliers therefore require continuing scrutiny.

There is also a positive ESG dimension. As AI and data centres demand more computing power, improving the energy efficiency of chips becomes increasingly important. KLA’s technology supports the smaller, more advanced manufacturing processes needed to deliver greater computing performance with less energy per calculation.

Through the KLA Foundation, the company supports communities in the regions where it operates. The Foundation’s priorities include widening access to high-quality education, backing locally led initiatives and helping employees contribute to community programmes.

Through the KLA Foundation, the company supports communities in the regions where it operates. The Foundation’s priorities include widening access to high-quality education, backing locally led initiatives and helping employees contribute to community programmes.

Semiconductors are essential to modern life and KLA occupies an indispensable and highly specialised position in microchip manufacturing. Its market leadership, recurring service revenue and exposure to long-term demand for more sophisticated chips make it an attractive business. Those strengths must be weighed against the semiconductor industry’s cyclical nature and its significant environmental and supply-chain footprint.

Written by David Gorman

Disclaimer

Information is correct as at 27.10.2026. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment, capital is at risk.