What happened
Shares of semiconductor manufacturing foundry company GlobalFoundries (GFS 0.78%) rocketed 11.7% higher on Monday, as of 3:52 p.m. ET despite much of the chip sector selling off on the heels of Nvidia's (NVDA 3.17%) negative earnings pre-announcement.
GlobalFoundries defied the sector by announcing an extension of its supply agreement with mobile chip giant Qualcomm (QCOM 0.97%). The announcement followed a positive week for GlobalFoundries stock during which it benefited from heightened tensions between Taiwan and mainland China since the company is based in the U.S. and Europe, and not in East Asia.
NASDAQ: GFS
Key Data Points
So what
There was a summit held today in Washington D.C. hosted by leading CEOs of chip companies like GlobalFoundries and chip consumers like Ford (F 1.16%), along with members of the Biden administration, to celebrate the passing of the CHIPS Act. It was at that event that GlobalFoundries announced the new extension of its long-term agreement with Qualcomm.
GlobalFoundries already had a long-term supply agreement and collaboration with Qualcomm prior to today, but with the CHIPS Act recently passing Congress, the current agreement "more than doubles" the quantity of chip output, specifically in the company's U.S. facilities. The agreement covers Qualcomm chips for "FinFET for 5G transceivers, Wi-Fi, Automotive and IoT connectivity," and extends through 2028.
While GlobalFoundries doesn't make the most leading-edge mobile modems Qualcomm is most known for, these other applications produced on mature semiconductor nodes are growing fast within Qualcomm's portfolio. Last quarter, Qualcomm's automotive and Internet of Things (IoT) chips grew 38% and 31%, respectively.
The purchase commitment from Qualcomm, combined with the CHIPS Act funding, will help GlobalFoundries fund capacity expansion in the U.S., specifically in its main operations in upstate New York. The CHIPS Act provides $52.7 billion in government subsidies to fund foundry expansions on U.S. soil, a four-year 25% tax credit estimated to cost $24 billion, and a large, longer-term $200 billion investment for research and development to bolster the U.S. chipmaking workforce.
Now what
It was another good day for GlobalFoundries, which is increasingly seen as one of the better-positioned semiconductor stocks in the current environment. Lagging-edge specialty nodes are actually seeing booming demand as auto, IoT, and edge computing applications take off, while GlobalFoundries' East Asian competitors are now suddenly at higher risk of an invasion by China.
While shares trade around 26 times this year's earnings estimates, which aren't that cheap, the long-term growth outlook for GlobalFoundries looks rather bright -- and just got a little bit brighter today.
