GlobalFoundries' 2025 Results Likely Confirm Fragile Recovery Amid Subsidy-Driven Capex

What happened

GlobalFoundries announced its fourth quarter and fiscal year 2025 financial results, though the release lacks specific numbers, suggesting management may be framing outcomes cautiously. Based on prior filings, the company has struggled with revenue declines from $8.1 billion in 2022 to $6.75 billion in 2024, driven by persistent smartphone weakness accounting for over 40% of sales. Automotive and data center segments have grown, with auto revenue approaching $1.5 billion in 2025, but this has not fully offset broader underutilization, which hit 77% in 2024. The 2024 $935 million Malta impairment and ongoing renegotiations of long-term agreements highlight risks in capital allocation and demand visibility. These trends underscore why the stock, at $47.41 and ~17x EV/EBITDA, already prices in a smooth recovery that filings show is far from assured.

Implication

The reliance on auto and data center growth to counter smartphone declines means any slowdown in these engines could quickly pressure revenue and margins, given high fixed costs. Utilization must rise sustainably above 80% to justify margins, yet Chinese mature-node overcapacity threatens pricing and fill rates for new capacity. Government subsidies like CHIPS reduce capital burden but introduce dependency and restrictions on dividends or expansions, adding execution risk. AI-related bets in silicon photonics and GaN remain pre-revenue and won't impact earnings before 2027, offering little near-term support. Overall, the risk-reward favors trimming exposure or waiting for a better entry below $38 until clear evidence of demand breadth and margin stability emerges.

Thesis delta

The DeepValue report's 'POTENTIAL SELL' thesis remains unchanged, as the 2025 results likely reinforce concerns about underutilization and mix shifts rather than altering the fundamental outlook. No shift is warranted unless future disclosures show utilization recovering above 85% with EBITDA margins exceeding 26% over consecutive quarters, which the current announcement does not indicate. Investors should continue monitoring 90-day checkpoints, such as auto revenue trends and CHIPS funding milestones, for any deviation.