GlobalFoundries Earnings: 2024 Starts Off Weaker Weighed by Communications and Industrials

We maintain our fair value estimate for GlobalFoundries, or GF, at $45 after factoring soft first-quarter guidance in our 2024 forecast and small adjustments thereafter. Shares look overvalued as we view the market has overestimated GF’s ability to defend pricing through single-sourced products. We view recent developments in the foundry sector as posing incremental challenges to GF’s long-term goal for 40% gross margin, as incremental capacity outside of Taiwan by competitors like TSMC would dampen GF’s proposition as a major non-Asian foundry. The main upside risks to our fair value estimate are larger-than-expected Chips and Science Act subsidies and escalating geopolitical tensions in East Asia.