Legacy Fabs Will Suffer As TSMC And Samsung Lead

Key Takeaways

• Lagging investment in advanced chip technologies and stricter sustainability standards threaten GlobalFoundries' market share, margins, and growth prospects.
  
• Rising geopolitical tensions and industry consolidation increase customer concentration risks and pressure pricing, further challenging future earnings and competitiveness.
  
• Diversified end markets, specialized technologies, manufacturing flexibility, and financial discipline position GlobalFoundries for sustained growth and resilience amid evolving semiconductor industry dynamics.

Catalysts

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

• The accelerating shift toward leading-edge nodes for artificial intelligence and high-performance computing is likely to outpace GlobalFoundries’ investment in mature nodes, leading to long-term market share losses and revenue stagnation as critical customers migrate to more advanced competitors.
  
• Intensifying global emphasis on energy efficiency and sustainability standards will drive higher compliance costs and necessary capital expenditures for facility upgrades, severely compressing net margins for GlobalFoundries, whose older fabs may lag behind industry benchmarks for green manufacturing.
  
• As geopolitical tensions persist, the emerging “onshoring” and localized sourcing mandates trending across regions may erode GlobalFoundries’ competitiveness outside the United States, exacerbating customer concentration risk and reducing its diversified global revenue base.
  
• With a persistent lag in leading-edge process technology behind TSMC and Samsung, GlobalFoundries faces mounting difficulty differentiating its specialty foundry offerings, likely resulting in falling average selling prices that will cause gross margin compression and lower long-term earnings visibility.
  
• The ongoing trend toward industry consolidation and greater vertical integration by integrated device manufacturers could shrink the third-party foundry addressable market, increasing the risk of sustained overcapacity and triggering prolonged price wars, which would undermine profitability and limit GlobalFoundries’ long-term earnings growth.

GlobalFoundries Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on GlobalFoundries compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming GlobalFoundries's revenue will grow by 5.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -2.8% today to 15.9% in 3 years time.
• The bearish analysts expect earnings to reach $1.3 billion (and earnings per share of $2.28) by about May 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 bearish analyst cohort, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from -102.7x today. This future PE is lower than the current PE for the US Semiconductor industry at 22.5x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.38%, as per the Simply Wall St company report.

GlobalFoundries Future Earnings Per Share Growth

Risks

• Robust long-term demand from automotive, IoT, data center, and communications infrastructure, as evidenced by double-digit annual revenue growth and strong design win momentum in these markets, could drive sustained revenue and support earnings growth.
  
• Geographic diversification and manufacturing flexibility, with substantial investments across U.S., Europe, and Asia, position GlobalFoundries to benefit from customers' increasing need for supply chain resilience, likely increasing contract value and reducing earnings volatility.
  
• Continued success in securing sole-source design wins and multi-year customer agreements creates higher revenue visibility and reduces risks of sharp drops in utilization or profitability, which could result in steadier EBITDA growth.
  
• Focus on differentiated technologies (such as RF, power, and photonics) and specialty applications (e.g., silicon photonics for data centers, ADAS in automotive, and AI-enabled IoT chips) enables GlobalFoundries to compete on features rather than price, which could support higher net margins even as ASPs decline.
  
• Strong cash flow, disciplined CapEx spending, and balance sheet strength, with ongoing margin expansion initiatives and structural cost improvements, provide GlobalFoundries with financial flexibility to withstand short-term headwinds and invest for long-term profit growth.

Valuation

• The assumed bearish price target for GlobalFoundries is $35.0, which represents the lowest price target estimate amongst analysts. 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 more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $65.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $8.0 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of $34.91, the bearish analyst price target of $35.0 is 0.3% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.