GlobalFoundries Offers a Compelling Outlook at Capital Markets Day, but Headwinds Loom in Near Term

On Aug. 10, GlobalFoundries held its first capital markets day at which management outlined the firm’s long-term strategy and outlook. While we like the firm’s increasing focus on differentiated technologies, including single-source products (chips that cannot be made elsewhere without significant redesigns), we do not believe the firm has an economic moat. GlobalFoundries gets about half of its revenue from the smartphone space, which we expect to be weaker in the near term, though the firm does boast enviable exposure to higher content 5G devices. Longer-term, we anticipate the bulk of GlobalFoundries’ growth to come from the Internet of Things, automotive, and communications infrastructure and data center end markets. The firm has its capacity booked up for both this year and next, but we are concerned with softness in certain chip demand pockets as well as inflationary, geopolitical, and pandemic-related headwinds.