Secular Trends Will Transform Chip Demand In Automotive And IoT

Key Takeaways

• Growing demand for specialty semiconductors, resilient customer relationships, and strong design wins are driving revenue stability and long-term topline growth.
  
• Strategic investments, differentiated technologies, and capital-efficient expansion are improving margins, operating leverage, and overall profitability prospects.
  
• Limited R&D investment, customer concentration, regulatory pressures, and rising competition expose the company to margin constraints and long-term revenue risks.

Catalysts

A semiconductor foundry, provides range of mainstream wafer fabrication services and technologies worldwide.

• GlobalFoundries’ diversified US and European manufacturing footprint is attracting increased customer interest amid rising geopolitical tensions and supply chain disruptions. This positions the company to capture additional market share and benefit from government incentives, directly supporting future revenue growth and earnings stability.
  
• The ongoing surge in demand for AI, edge computing, automotive electronics, and industrial IoT is driving a secular increase in the need for specialty and mature-node semiconductors. GlobalFoundries is leveraging design win momentum—especially with 90% sole-sourced wins in automotive, communications infrastructure, and data centers—which provides revenue visibility and long-term topline growth.
  
• Differentiated technologies, including silicon photonics, RF, power, and ultra-low power platforms, are gaining adoption in high-growth end markets such as data centers, commercial satellites, and advanced automotive systems. As these higher-value product mixes ramp in volume, GlobalFoundries expects meaningful gross margin and net margin expansion, directly impacting future profitability.
  
• Capital-efficient expansion strategies and multi-billion-dollar investments since 2021 have created significant manufacturing scale. This enables GlobalFoundries to grow revenue to the $9–10 billion range without substantial new fixed costs, driving substantial operating leverage and supporting long-term earnings per share growth.
  
• Structural, long-term customer relationships anchored by multi-year supply agreements with leading players in automotive, industrial, and communications sectors reduce revenue volatility. These agreements support more predictable free cash flow and enhance the company’s capacity to invest in R&D or opportunistic M&A for further growth, boosting the runway for sustainable increases in earnings and valuation.

GlobalFoundries Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on GlobalFoundries compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming GlobalFoundries's revenue will grow by 9.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.8% today to 21.7% in 3 years time.
• The bullish analysts expect earnings to reach $2.0 billion (and earnings per share of $3.39) by about July 2028, up from $-188.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, up from -119.1x today. This future PE is lower than the current PE for the US Semiconductor industry at 27.9x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.77%, as per the Simply Wall St company report.

GlobalFoundries Future Earnings Per Share Growth

Risks

• GlobalFoundries continues to lag industry leaders in advanced process nodes and faces persistent underinvestment in R&D compared to peers like TSMC and Samsung, which limits its access to the most profitable and fastest-growing chip segments and puts long-term revenue growth at risk.
  
• Heightened geopolitical tensions, evolving export controls, and ongoing tariff disputes introduce uncertainty across global supply chains and end-market demand, raising the possibility of supply disruptions and increased costs that could pressure margins over time.
  
• The company remains heavily exposed to customer concentration, particularly through sole-source design wins and significant contracts with customers like AMD and government entities, exposing it to material earnings declines if key customers insource or shift production elsewhere.
  
• As environmental regulations and decarbonization requirements become stricter worldwide, the increasing compliance and reporting obligations may significantly raise operational expenses, constraining net margins versus more scaled, technologically advanced competitors.
  
• Intensifying competition in mature and specialty nodes from Asian foundries such as SMIC and UMC, combined with declining demand for legacy technologies due to chiplet architectures and advanced packaging, threaten GlobalFoundries’ utilization rates and future revenue streams.

Valuation

• The assumed bullish price target for GlobalFoundries is $54.14, which represents two standard deviations above the consensus price target of $44.32. This valuation is based on what can be assumed as the expectations of GlobalFoundries's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $38.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $9.0 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 9.8%.
• Given the current share price of $40.34, the bullish analyst price target of $54.14 is 25.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.