On Monday, JPMorgan (NYSE:JPM) shifted its stance on GlobalFoundries Inc. (NASDAQ: NASDAQ:GFS), downgrading the stock from Overweight to Neutral and adjusting its price target to $56 from the previous $65. The semiconductor manufacturer faces a decline in specialty and mature node foundry manufacturing activities, which is expected to lag behind the general semiconductor industry recovery by one to two quarters.
The downgraded outlook reflects concerns that the current market trends are not fully accounted for in the consensus expectations for the calendar year 2024. Prior to this change, JPMorgan's projections for GlobalFoundries' revenue and earnings per share (EPS) for the coming year were already significantly lower than the consensus, by 8% and 22% respectively.
The analyst also highlighted customer migration issues, with key GlobalFoundries clients like AMD (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM), and Marvell (NASDAQ:MRVL) transitioning away from the 12nm-16nm FinFET nodes that GlobalFoundries offers to more advanced nodes, which the company does not currently support. This shift may not be effectively compensated by new business, affecting the company's revenue, which is still substantially reliant on these technologies.
Furthermore, competition in the specialty and mature foundry manufacturing sector is intensifying, particularly in the US, Europe, and Japan. This is due to expansions by competitors such as TSMC and UMC, the latter having recently announced a partnership with Intel (NASDAQ:INTC) to develop mature node technology at Intel's US fabrication plants.
Taking these industry dynamics into account, JPMorgan has revised its expectations for GlobalFoundries, predicting a 6% decline in the company's revenues for the calendar year 2024, in contrast to the consensus forecast of a 3% increase. The firm also anticipates a 25% drop in EPS, compared to the consensus projection of a 3% rise. With the new price target suggesting limited stock appreciation potential and considering the customer and competitive challenges, the firm expects GlobalFoundries' performance to align with the broader market over the next 12 to 18 months.
InvestingPro Insights
As GlobalFoundries Inc. (NASDAQ: GFS) navigates a challenging landscape in the semiconductor sector, investors are closely monitoring its financial health and market position. According to InvestingPro data, GlobalFoundries boasts a market capitalization of 30.58 billion USD, indicating a significant presence in the industry. The company's P/E ratio stands at 21.83, suggesting that the stock is trading at a relatively low price relative to near-term earnings growth potential. This aligns with one of the InvestingPro Tips, which highlights that GlobalFoundries is trading at a low P/E ratio compared to its earnings growth.
Despite facing headwinds, GlobalFoundries has been recognized as a prominent player in the Semiconductors & Semiconductor Equipment industry. Analysts have revised their earnings upwards for the upcoming period, reflecting a cautiously optimistic sentiment about the company's ability to navigate the current industry challenges. Moreover, the company's liquid assets exceed its short-term obligations, providing a cushion for operational flexibility.
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