Shares of U.S.-based semiconductor manufacturing company GlobalFoundries (GFS 2.35%) rallied on Friday, with the stock up 6.7% as of 1:50 p.m. ET.
Last night, the Wall Street Journal published an article outlining a new Trump administration proposal to phase in tariffs on semiconductors. If such a tariff were implemented, it could boost demand for U.S.-based chipmaking, which could help boost demand for GlobalFoundries' domestic services.
NASDAQ: GFS
Key Data Points
The new "1:1" proposal on chips
In the WSJ report, the Trump administration's new proposal would mandate that chip companies would have to, over time, domestically produce an equal amount of chips in the U.S. relative to the amount they import from overseas in order to avoid a 100% tariff on imported chips. If a company commits to producing a certain amount of chips in the U.S., it would earn a "credit" in an equal amount of near-term imports, in order to provide time to ramp its domestic production.
The rule hasn't been implemented, but if it were, it could mean a lot more chipmakers would be looking to U.S.-based foundries such as GlobalFoundries for more of their chipmaking needs. While GlobalFoundries only makes "specialty" lagging-edge chips, not leading-edge chips central to artificial intelligence (AI), which are largely produced in Taiwan, there is still lots of lagging-edge chipmaking that happens overseas.
Image source: Getty Images.
Is GlobalFoundries still a buy?
GlobalFoundries only grew revenue 3% last quarter, as its trailing-edge chip end markets across mobile, auto, IoT, and data centers showed mixed results. Meanwhile, the stock trades around 22 times this year's earnings estimates and 17.6 times next year's estimates. Therefore, it appears about 25% earnings growth is already priced into shares.
While GlobalFoundries may get a marginal demand bump if the new rule is implemented, the domestic manufacturer that produces leading-edge processors, otherwise known as Intel, may be the better turnaround play on this announcement, in this investor's opinion.
