Noting that long-held KLA Corporation (NASDAQ:KLAC) shares had pulled back significantly after peaking past $300 in June, a caller on the September 1 episode of Mad Money asked if it is a buy, hold, or sell. In response, Jim Cramer said:
I think it's a great company. It is up 40% for the year. Its price-to-earnings multiple is still too high. It does great intellectual property. I think if you wanted to buy some here, it's fine. But again, I would not put a lot of it on. Why? Because these are all semiconductor capital equipment companies that I've been talking about this evening. They're extremely volatile. You can buy a quarter… and then you have to wait no more than that because we have to see what happens. I don't want you to put on too much money at one level in a stock this volatile.
KLA Corporation (NASDAQ:KLAC) has built an extraordinary business by dominating the semiconductor process control and inspection market. Advanced-node, high-bandwidth-memory and complex logic manufacturing increasingly requires sophisticated inspection and metrology tools, an area where KLA holds a leading position. The deep competitive moat and exceptional intellectual property make it an important player in the semiconductor supply chain. For long-term investors, this technical leadership provides a solid foundation that exceeds routine industry ups and downs.
Even with top-tier technology, KLA Corporation's (NASDAQ:KLAC) sharp climb leaves little room for error. Up nearly 33% year-to-date at the time of writing and trading at a forward multiple of 31.65x, the valuation shows a heavy dose of optimism. Semiconductor capital equipment stocks are notoriously cyclical and prone to sharp price swings, meaning that a pullback from recent highs can quickly turn into a deeper correction if market sentiment shifts or fab spending slows down.
Wall Street's major players keep a close watch on KLA Corporation (NASDAQ:KLAC) as a reliable gauge of overall semiconductor capital spending. According to Insider Monkey's database tracking elite hedge funds, 81 funds held a position in the stock during the second quarter, up from 71 in the previous quarter, showing clear institutional interest. Arrowstreet Capital remained the company's top shareholder in the second quarter, despite reducing its position by 41% to 4.7 million shares. At the same time, short interest sits at just 2.16% of the float, indicating that professional bears are largely keeping their distance despite the company's high price tag.
Cramer's warning is a good reminder not to jump headfirst into volatile chip stocks. Buying in small pieces rather than all at once helps cushion the blow if the stock takes a sudden dive. Taking things quarter by quarter keeps your risk manageable while you wait to see how the next few months shake out.
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