MKS Inc. supplies the layer beneath the fab tools everyone quotes: vacuum and pressure subsystems, gas and flow controls, radio-frequency power delivery, plasma sources and lasers, sold to chipmakers and to the companies that build their equipment. It also owns, since a debt-funded 2022 purchase of Germany's Atotech, an electroplating-chemistry business that plates copper onto printed circuit boards and advanced packaging substrates. That second half has been treated for four years as the thing to look past.

In the June quarter it was the faster half. Group revenue reached $1.248bn, up 28% year on year and accelerating from 15% in the March quarter. The Semiconductor segment contributed $554m and grew 28%. Electronics & Packaging — the Atotech-derived arm — contributed $381m and grew 44%. Specialty Industrial added $313m. So semiconductors are 44% of MKS, not most of it, and the chemistry is not the drag. Management said artificial-intelligence-related chemistry has gone from roughly 5% of chemistry revenue in 2024 to 15-20% now, with lead times of six to nine months and visibility into 2027.

The leverage question, answered in cash

The standing objection to MKS has been the balance sheet, not the business. That objection is smaller than it was. Net leverage is 3.0x, down from 4.0x a year earlier. Free cash flow was $188m in the quarter, about 15% of revenue, and the company made a $100m voluntary prepayment on its term loans with more planned for the second half.

One wrinkle is worth knowing. Because the share price cleared the conversion trigger, MKS reclassified $1.4bn of convertible senior notes into short-term debt, which are convertible at holders' option this quarter. Cash stood at $611m. It is an accounting reclassification of an equity-linked instrument, not a funding cliff — but it makes the short-term debt line look alarming to anyone reading only the balance sheet.

Operating margin reached 20.1% against 13.9% a year earlier, and operating income grew 86% on 28% revenue growth. The September quarter is guided to $1.35bn, with the semiconductor segment around $630m — more than 50% growth.

What the shares did

None of that stopped two hard falls. Between 22 and 29 July, MKS lost 25% as the Philadelphia Semiconductor Index entered bear-market territory and more than $1trn of chip value was erased on doubts about hyperscaler returns; Applied Materials fell 21% in the same window. Then 17-19 August took another 13%, as the 30-year Treasury yield hit a 19-year high and the chip index dropped 4.96% in a session. Both were index-wide. Neither was about MKS.

The result is that MKS trades at 21.4x forward earnings against 42.9x trailing, and at 9.89x trailing gross profit — below the 10.77x it carried in early May, when growth was half its current rate. The demand pool behind it was raised, not cut: Lam Research lifted its 2026 wafer-fab-equipment forecast to the low $150bn range from $140bn, and Applied Materials says leading-edge foundry, memory and advanced packaging drive more than 80% of this year's spending growth.

Two neighbors, two different answers

FormFactor makes probe cards — the consumable interfaces that test chips while still on the wafer, bought per wafer rather than per tool. Its gross margin hit 50.7% against 37.2% a year earlier, gross profit grew 80%, and its memory probe business set a record with high-bandwidth memory roughly two-thirds of it, on two customers adopting its full-wafer contactor for HBM4 testing. At 21.9x trailing gross profit it is priced at less than two-thirds of its early-May multiple. The caveat is the guide: September memory revenue is flat, with mix shifting toward lower-content standard DDR chips.

Ichor is the different case. It builds gas and fluid-delivery panels to its customers' designs, at low-teens gross margins, with Lam and Applied together 76% of sales. The business improved — revenue up 23%, gross margin recovered to 13.9% from a 4.6% trough, and full-year growth guided to at least 30%. But even after a 40% fall from July, it trades at 20.5x trailing gross profit, slightly above its early-May level, because gross profit grew faster than the price fell. On 38.6x forward earnings for build-to-print work, its decline has removed less than it appears.

The setup

Where it stands — MKS's chemistry arm is outgrowing its semiconductor arm while the forward multiple sits below May's, and leverage is falling.

Would confirm — September-quarter revenue near the $1.35bn guide with Electronics & Packaging growth above 30%.

Would invalidate — Semiconductor revenue below the roughly $630m guided, or net leverage rising back above 3.5x.

Watch next — MKS reports the September quarter in early November; FormFactor's memory mix shift shows up first, in late October.

Valuation — MKS at 21.4x forward and 42.9x trailing earnings; 9.89x trailing gross profit against 10.77x in early May.