GFS Stock: Pure-Play Semi Stock | Learn More

GlobalFoundries (Nasdaq: GFS) is trending on Wall Road after spectacular earnings progress amid the chip scarcity. In truth, GFS inventory is outperforming its friends because it continues ramping manufacturing.

The chip scarcity is lasting longer than most specialists predicted. The shortage is inflicting drastic results throughout the economic system, with used automobile costs hovering 40.5%, resulting in the best inflation to 40-year highs. But different semiconductor shares like AMD (Nasdaq: AMD) and Nvidia (Nasdaq: NVDA) are lagging as valuations come again into focus.

With the Fed altering its coverage stance from pro-growth to slowing inflation, traders are decreasing portfolio danger. Because of this, extremely valued progress shares are dropping in favor of worth.

Though GlobalFoundries is much from a worth inventory, the corporate is turning into a Wall Road favourite because it seems to resolve the chip scarcity. Can the underdog firm resolve one of many largest crises pressuring the worldwide economic system?

Let’s see how the corporate plans to take action and the way GFS inventory can profit from this atmosphere.

GlobalFoundries: The Subsequent Chipmaking Powerhouse?

Pc chips are taking part in an ever-increasing function in our lives. They’re now powering the whole lot from smartphones to your automobiles. However making these gadgets will not be straightforward. In truth, it includes lots of of steps that may take months to provide.

Not solely that, however the tools prices thousands and thousands of {dollars} and can’t be “contaminated” with exterior air or mud. The chips have gotten more and more extra advanced as know-how continues progressing.

With this in thoughts, GlobalFoundries is stepping as much as handle the rising want. The corporate began as a producing arm for AMD and is rising right into a chipmaking powerhouse. That mentioned, a few of its largest shoppers now embrace:

On high of this, the corporate is addressing rising markets like smartphones (5G), automotive and the web of issues (IoT). Nonetheless, what makes GFS inventory distinctive is that it’s a semiconductor foundry.

A foundry makes pc chips for different companies who want them to energy their know-how like Apple (Nasdaq: AAPL). That mentioned, foundries play an important function within the provide chain.

So, when new tech hits the market like 5G or self-driving automobiles, a foundry typically provides the chips. The biggest and most well-known semi foundry is Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), with over $15.7B in income final quarter.

GlobalFoundries is the third largest foundry, behind TSM and Samsung. The chipmaker has 14 places within the U.S., Germany and Singapore, with over 200 clients.

Spectacular Earnings Progress

After one other massive earnings beat, this marks the second quarter in a row of GlobalFoundries profitability. The chipmaker noticed report progress throughout the board, with demand for semis not slowing.

  • Income up 74% to $1.85B.
  • Internet Revenue up 108% to $43M.
  • Gross Revenue up 276% to $384M.
  • Working Revenue up 118% to $87M.
  • Money from operations up 571% to $947M.

As might be seen, the semi enterprise is booming. That mentioned, the corporate is ramping manufacturing to fulfill the continued demand. Most significantly, GFS inventory is popping worthwhile with web earnings accelerating 760% from $5M in Q3 to $43M in This fall.

With this in thoughts, CEO Tom Caulfield believes the momentum will proceed this yr, saying:

“We’re executing nicely, and consider we’re on observe to ship one other yr of robust progress in income and profitability in 2022.”

Caulfield additionally attributed the corporate’s progress to signing long-term partnerships with key companies. First, GF is extending its wafer provide settlement with AMD whereas extending provide by means of 2025. Secondly, GFS is partnering with BMW to safe long-term semi provides. And lastly, GFS and Ford are collaborating to spice up chip gross sales for the auto business.

On high of this, the corporate is aggressively increasing its manufacturing means. With 30 long-term partnership agreements committing over $3.2B, GFS is well-positioned to maintain the expansion.

To this point, GFS is already engaged on a brand new plant in Singapore and planning to construct its most superior facility in upstate New York. On high of this, the chipmaker is increasing capability by 25% in Dresden.

GFS Inventory Evaluation

After its debut final October, GFS inventory gained over 55% in a month as Wall Road purchased into the enterprise mannequin. Nonetheless, GFS shares are getting dragged down with general market weak point since then.

Good setups out there are arduous to come back by proper now. In truth, semiconductors are one of many weakest performing teams. The VanEck Semi ETF (Nasdaq: SMH) misplaced 8% prior to now month.

On the identical time, pc chips are extra important than ever. World semi gross sales are hovering, with whole gross sales breaking an business report final yr with over 1 trillion. With this in thoughts, the tech selloff is rippling throughout the market, with software program and semi’s main the best way down.

Though the corporate is experiencing stable progress, GFS inventory remains to be topic to the general market traits. Particularly as a newly worthwhile firm, GFS might be considered as a riskier funding.

That being mentioned, GFS inventory has excessive institutional possession at over 95% as Wall Road continues betting on the foundry.

Forecasting GFS Inventory: The place Do We Go From Right here

With GFS inventory down over 25% from its highs, you’ll suppose it’s dropping enterprise. However GlobalFoundries is simply getting began on its mission.

After an explosive yr in 2021, GFS seems to proceed constructing momentum this yr. The foundry is partnering with a few of the high manufacturers globally to assist ease the chip scarcity whereas extending its attain.

It’s necessary to bear in mind semiconductors are usually cyclical, with newer, extra superior chips consistently being developed.

Nonetheless, GFS is taking advantage of the chip scarcity by accelerating its marketing strategy and capitalizing on the upper demand. With a number of long-term partnerships now underneath its belt, the corporate is on observe to see continued progress.

And with a number of new services coming quickly, they need to have the flexibility to proceed constructing these long-term partnerships to drive income. In the long term, GFS is positioning itself to turn into a chipmaking powerhouse with the flexibility to energy superior applied sciences.

Pete Johnson is an skilled monetary author and content material creator who makes a speciality of fairness analysis and derivatives. He has over ten years of non-public investing expertise. Digging by means of 10-Okay varieties and discovering hidden gems is his favourite pastime. When Pete isn’t researching shares or writing, you will discover him having fun with the outside or working up a sweat exercising.

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