What happened
Shares of third-party semiconductor foundry GlobalFoundries (GFS 4.58%) were soaring today, up 13.5% as of 2:03 p.m. ET.
There wasn't any specific news out of the company today, but it was a good day for technology stocks, which bounced back from a brutal multi-day sell-off.
However, there could be another geopolitical reason investors may be buying shares of GlobalFoundries in size today.
NASDAQ: GFS
Key Data Points
So what
Even though we are in a massive semiconductor shortage that may not resolve until some time next year, and that shortage is bullish for GlobalFoundries' growth outlook, semiconductor-related stocks have sold off hard recently due to geopolitical tensions.
Based on history, the sell-off may be warranted. Historically, the semiconductor industry has been known to be cyclical. With high inflation and energy prices today and fears over the Fed raising rates, investors have recently de-risked their portfolios on fears over a recession. So, they have been selling semiconductor stocks in spite of booming current demand coming out of the pandemic.
Yet on Tuesday, February's Producer Price Index reading came in below expectations. The PPI tracks input costs for businesses and is thought of as a predictor of future inflation. While the PPI rose in February, it rose just 0.8% over January, slowing from January's 1.2% rate. And "core" PPI, which excludes volatile food and energy prices, rose just 0.2% month over month versus expectations of 1%.
That inflation reading likely boosted sentiment for high-multiple tech stocks, including GlobalFoundries; it has a forward P/E ratio of 35, which is on the high side.
Additionally, amid Russia's invasion of Ukraine, investors may be fearing that China might take action with respect to Taiwan, which it has long hoped to "reunite" with greater China. In that case, semiconductor investors may gravitate away from GlobalFoundries rival Taiwan Semiconductor Manufacturing (TSM 6.22%) and toward GlobalFoundries. That's because Taiwan Semi has the majority of its capacity in Taiwan, whereas GlobalFoundries has its fabrication facilities in the U.S., Germany, and Singapore.
Image source: Getty Images.
Now what
It should be noted that GlobalFoundries and Taiwan Semi are not interchangeable. Taiwan Semi has a current process edge in leading-edge semiconductors, whereas GlobalFoundries specializes in "specialty" or trailing nodes that are more mature. Those chips tend to go into communications devices, automobiles, and Internet of Things sensors and devices.
Geopolitical tensions and lockdowns in China could prolong the global chip shortage, which means GlobalFoundries likely has strong growth ahead of it, despite recession fears. Digitization isn't slowing down no matter what the economic outlook, so GlobalFoundries remains a top stock for technology investors to monitor.
