Applied Materials, Inc. (NASDAQ:AMAT) and KLA Corporation (NASDAQ:KLAC) sell different tools into semiconductor factories. Applied Materials helps manufacture devices; KLA’s inspection and measurement systems help customers find defects and protect yields. Both benefit from more demanding chips, but shareholders face a choice between faster recent sales growth and higher operating profitability.
Applied Materials’ October 7 price was about 73 times trailing free cash flow, against KLA’s 68 times. Faster growth therefore commands a cash-flow premium even though Applied Materials carries a lower consensus forward earnings multiple.
Applied Materials (AMAT) ranks #2 on our list of 7 Best Semiconductor Equipment Stocks to Buy, while KLA (KLAC) trails at #6. See which stock claimed the stock, beating these two.
Our ASML comparison examines what Applied Materials gains in breadth and gives up in technological scarcity. The Lam comparison tests when faster equipment growth deserves a higher price than KLA’s cash generation.
Applied Materials sells expansion; KLA protects the yield
Applied Materials’ fiscal third-quarter revenue increased 25% to $9.12 billion. GAAP operating income reached $3.08 billion, a 33.7% margin. Its broad materials-engineering exposure creates several routes into investment in advanced devices and packaging, reducing reliance on one manufacturing step.
That breadth does not eliminate the cyclicality, however. Customers can postpone equipment deliveries when capacity or financing becomes less attractive. New technology engagements also require development spending before they generate profitable production orders. Investors should demand realized returns rather than value each research collaboration as secured sales.
Insider Monkey tracked 137 Applied Materials holders in Q2 2026, versus 138 in Q1. Coatue reduced shares about 20%.
KLA’s June-quarter revenue rose about 15% to $3.66 billion. Subtracting reported cost of revenues, research and development, and selling and administrative expenses gives $1.55 billion of GAAP operating income, or 42.5% of sales. Inspection becomes more valuable when a defect threatens expensive wafers and complex packaging.
The bullish case is durable process-control demand and customer switching costs. The bearish evidence is cash growth: KLA’s fiscal 2026 free cash flow of $3.77 billion was only slightly above the prior year’s $3.75 billion. Strong margins alone have not produced equally strong annual cash expansion.
KLA’s holder count rose to 81 from 71 in Q1, while Polar increased shares about 8%. Those historical positions cannot establish that today’s valuation is attractive.
Applied Materials had 14.11 million shares short on September 15, or 1.8% of float.
Our equipment screen places both businesses among a wider set of suppliers. See which manufacturing bottlenecks the other equipment stocks address before concentrating in one tool category.
The multiple gap is too small to replace judgment
The trailing cash multiples use operating cash flow less capital spending, through July for Applied Materials and June for KLA. At fixed prices, KLA could sustain about a 7% decline in trailing free cash flow before its multiple reached Applied Materials’ current level. This calculation uses 68.19 and 73.48 times, with no forecast of either company’s next year. The discount is useful, but too narrow to provide a large margin of safety.
KLA has a narrow edge for its higher reported operating margin and lower cash-flow price. Applied Materials becomes preferable if faster revenue growth produces sustained cash growth while KLA’s conversion remains flat. Both would become less attractive if chipmakers’ investment slows; neither expensive trailing multiple can make that risk disappear.
