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How KLA's Service Business Is Becoming a Long-Term Growth Anchor
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Key Takeaways
KLA reported $775M in third-quarter service revenues with year-over-year growth.
KLAC sees AI chips, advanced packaging and high-bandwidth memory driving service demand.
KLA targets low-to-mid teens annual service revenue growth as installed base expands.
KLA Corporation’s (KLAC - Free Report) service business is steadily evolving into one of its most dependable long-term growth drivers. During the third-quarter fiscal 2026 earnings call, management emphasized that the segment continues to gain strategic importance as semiconductor manufacturing becomes more complex and customers rely on advanced tools for longer periods.
KLA reported service revenues of $775 million in the third quarter, reflecting healthy year-over-year growth despite minor sequential softness caused by revenue timing. More importantly, management highlighted that the service segment generates predictable cash flow, helping support the company’s aggressive capital return strategy through dividends and share repurchases.
The company believes rising demand for AI chips, advanced packaging and high-bandwidth memory is increasing the need for consistent tool maintenance, process optimization and uptime support. As fabs become more dependent on highly sophisticated inspection and metrology systems, customers are seeking deeper service partnerships to improve efficiency and maximize yields. KLA noted that longer equipment lifecycles and rising expectations for tool performance are creating a durable tailwind for service revenue growth.
The company also expects the expanding installed base of systems shipped in 2026 and beyond to further strengthen future service opportunities. Management reiterated its long-term target for service revenue growth in the low-to-mid teens annually, signaling confidence that the business can scale alongside semiconductor industry expansion.
With recurring revenues, strong customer engagement and growing semiconductor complexity, KLA’s service business is becoming a stabilizing force that can support long-term profitability across industry cycles.
Applied Materials and ASML: Service Growth Rivals
KLA's expanding service business mirrors a broader trend among semiconductor equipment companies where recurring service revenues are becoming increasingly important. One major competitor is Applied Materials (AMAT - Free Report) , which has been strengthening its services segment through long-term customer support agreements, predictive maintenance solutions and software-driven optimization tools. Applied Materials benefits from a large installed base across deposition, etch and materials engineering systems, creating steady recurring revenue opportunities beyond equipment sales.
Another relevant competitor is ASML Holding N.V. (ASML - Free Report) , whose highly sophisticated lithography systems require extensive maintenance and technical support throughout their operating life. As EUV tools become increasingly critical in advanced semiconductor manufacturing, customers depend heavily on ASML's service capabilities to ensure uptime and maximize productivity.
Like KLA, both companies are leveraging larger installed bases and rising semiconductor complexity to build resilient, recurring revenue streams that support long-term growth.
KLAC’s Share Price Performance, Valuation and Estimates
KLAC’s shares are currently trading at a premium, with a forward 12-month price-to-earnings (P/E) ratio of 38.05, as shown in the chart below.
P/E (F12M)
Image Source: Zacks Investment Research
For fiscal 2026, the Zacks Consensus Estimate for earnings is pegged at $37.06 per share, up 1.1% over the past 30 days. The figure implies a year-over-year increase of 11.4%.
View the Zacks #1 Rank List
Image: Bigstock
How KLA's Service Business Is Becoming a Long-Term Growth Anchor
Key Takeaways
KLA Corporation’s (KLAC - Free Report) service business is steadily evolving into one of its most dependable long-term growth drivers.
During the third-quarter fiscal 2026 earnings call, management emphasized that the segment continues to gain strategic importance as semiconductor manufacturing becomes more complex and customers rely on advanced tools for longer periods.
KLA reported service revenues of $775 million in the third quarter, reflecting healthy year-over-year growth despite minor sequential softness caused by revenue timing. More importantly, management highlighted that the service segment generates predictable cash flow, helping support the company’s aggressive capital return strategy through dividends and share repurchases.
The company believes rising demand for AI chips, advanced packaging and high-bandwidth memory is increasing the need for consistent tool maintenance, process optimization and uptime support. As fabs become more dependent on highly sophisticated inspection and metrology systems, customers are seeking deeper service partnerships to improve efficiency and maximize yields. KLA noted that longer equipment lifecycles and rising expectations for tool performance are creating a durable tailwind for service revenue growth.
The company also expects the expanding installed base of systems shipped in 2026 and beyond to further strengthen future service opportunities. Management reiterated its long-term target for service revenue growth in the low-to-mid teens annually, signaling confidence that the business can scale alongside semiconductor industry expansion.
With recurring revenues, strong customer engagement and growing semiconductor complexity, KLA’s service business is becoming a stabilizing force that can support long-term profitability across industry cycles.
Applied Materials and ASML: Service Growth Rivals
KLA's expanding service business mirrors a broader trend among semiconductor equipment companies where recurring service revenues are becoming increasingly important. One major competitor is Applied Materials (AMAT - Free Report) , which has been strengthening its services segment through long-term customer support agreements, predictive maintenance solutions and software-driven optimization tools. Applied Materials benefits from a large installed base across deposition, etch and materials engineering systems, creating steady recurring revenue opportunities beyond equipment sales.
Another relevant competitor is ASML Holding N.V. (ASML - Free Report) , whose highly sophisticated lithography systems require extensive maintenance and technical support throughout their operating life. As EUV tools become increasingly critical in advanced semiconductor manufacturing, customers depend heavily on ASML's service capabilities to ensure uptime and maximize productivity.
Like KLA, both companies are leveraging larger installed bases and rising semiconductor complexity to build resilient, recurring revenue streams that support long-term growth.
KLAC’s Share Price Performance, Valuation and Estimates
KLA’s shares have appreciated 62.1% in the trailing six months, outperforming the Zacks Computer & Technology sector’s rise of 17.6% and the Zacks Electronics - Miscellaneous Products industry’s surge of 38.3%.
Price Performance
Image Source: Zacks Investment Research
KLAC’s shares are currently trading at a premium, with a forward 12-month price-to-earnings (P/E) ratio of 38.05, as shown in the chart below.
P/E (F12M)
Image Source: Zacks Investment Research
For fiscal 2026, the Zacks Consensus Estimate for earnings is pegged at $37.06 per share, up 1.1% over the past 30 days. The figure implies a year-over-year increase of 11.4%.
Image Source: Zacks Investment Research
KLA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.