What happened
Shares of semiconductor foundry GlobalFoundries (GFS +4.50%) soared 23.2% in February, according to data from S&P Global Market Intelligence. GlobalFoundries is a large company with a long history, but just went public via an initial public offering in late October 2021.
Of course, February's rise didn't quite make up for the stock's 24.1% decline in January, which was caused by widespread fears over rising interest rates. Yet there was more to February's fine performance, as GlobalFoundries reported strong earnings that beat expectations.
NASDAQ: GFS
Key Data Points
So what
In the fourth quarter, GlobalFoundries' revenue rose 74% year over year to $1.85 billion, while non-GAAP (adjusted) EPS soared 117% to $0.18 per share. Both figures handily beat analyst expectations. Management also guided for sequential demand, even in a seasonally down quarter.
GlobalFoundries was a big beneficiary of last year's chip shortage, much of which had to do with chips on lagging specialty nodes, which is where GlobalFoundries shines. Lagging-node chips are pervasive in increasingly tech-forward automobiles, as well as sensors for automation and the Internet of Things.
Fortunately for GlobalFoundries, but perhaps unfortunately for consumers, management doesn't think the chip shortage on lagging nodes will be resolved anytime soon. In a recent interview with Barron's, Chief Financial Officer David Reeder predicts capacity additions for lagging-edge nodes -- those between 12 nanometers and 90 nanometers -- are still currently undershooting projected demand over the next couple of years.
GlobalFoundries is trying to build more capacity. To fund its aggressive buildout, management noted it had received 30 different chip customers committing $3.2 billion in prepayments for GlobalFoundries' capacity expansion.
Image source: Getty Images.
Now what
After its February rise, GlobalFoundries trades at around 33 times this year's earnings estimates. That's certainly not cheap, but analysts also expect GlobalFoundries to continue growing at strong rates for the next few years at least. It appears after the semiconductor swoon in 2019 amid the U.S.-China trade war, the global industry was left unprepared for the demand boom from digitization coming out of the pandemic.
GlobalFoundries looks to be one of the big beneficiaries amid surging demand for chips, and that should last for the next few years. However, investors should keep in mind that Intel has plans for an aggressive buildout of its own foundry business, which is likely to come online in 2025.
