GlobalFoundries (GFS, Financial) saw a slight increase today after revealing its long-term revenue growth target during its Investor Presentation. GFS forecasts an annualized growth of 8-12%, a significant recovery from the 9% decline in FY23, though not reaching the 23% and 36% surges of FY22 and FY21, respectively.
What does GFS do? GFS manufactures semiconductors, similar to Taiwan Semi (TSM, Financial), but focuses on less advanced chips. Unlike high-end AI chips, GFS produces essential chips for everyday devices such as refrigerators, dishwashers, smartphones (for power management), vehicles, and other electronics. Originally part of Advanced Micro (AMD, Financial), GFS has carved out a niche in this market.
Without significant exposure to the AI sector like NVIDIA (NVDA, Financial) and AMD, GFS hasn't capitalized on the AI boom. Its shares have dropped about 30% YTD and remained flat over the past five years. Nevertheless, GFS has several advantages that could lead to a meaningful recovery.
- After a sequential revenue increase in Q2, GFS reiterated that Q1 marked the low point for sales this year and expects further improvement in Q3. The company noted that while China's recovery might be uneven, easing interest rates in the West should boost consumer demand across various applications.
- Opportunities in power management are promising. In Q2, management highlighted that customers are developing next-gen power management technologies in the U.S. due to increasing data communication needs. On Semi (ON, Financial) indicated that as AI data center power consumption triples, its addressable content could nearly quadruple.
- With U.S.-China tensions, companies might reduce reliance on TSM and China-based foundries. GFS, headquartered in New York with production in the U.S., Singapore, and Europe, benefits from this shift. Geopolitical tensions are likely preventing customers from moving orders to China, and GFS reported minimal customer migration to China despite new foundries there.
Although GFS's long-term targets didn't significantly boost the stock today, the company is positioning itself for a potential turnaround. Economic recovery, increased demand for power management chips, and a strong U.S. presence are favorable factors for GFS.
