Seeking Alpha Bullish on GFS, But DeepValue Report Highlights Overvaluation Risks

What happened

Seeking Alpha reiterated a Buy rating on GlobalFoundries with a $54.52 price target, citing Q4'25 margin expansion and strategic acquisitions in silicon photonics and GaN technology. However, the DeepValue master report reveals that GFS's revenue has been flat since 2022, with underutilized fabs, margin compression, and a $935 million impairment in 2024. The company's smartphone segment, accounting for over 40% of revenue, continues to decline, while growth in autos and data centers remains insufficient to drive strong consolidated expansion. AI-related initiatives like MIPS and silicon photonics are pre-revenue and not expected to contribute meaningfully until after 2026, adding uncertainty to near-term growth. Despite the optimistic article, underlying financials and market conditions suggest GFS's current valuation at ~17x EV/EBITDA may already embed overly optimistic assumptions about margin improvement and demand.

Implication

Short-term, the bullish sentiment may drive price momentum, but long-term, GFS faces headwinds from smartphone weakness, Chinese mature-node overcapacity, and subsidy risks that could impair returns. The company's high EV/EBITDA multiple and reliance on government funding leave little margin for error if utilization fails to recover or AI initiatives stall. Based on the DeepValue report, trimming positions above $55 or waiting for a better entry below $38 aligns with a risk-averse strategy, given the stock's limited downside protection. Key monitoring points over the next 6-12 months include fab utilization rates, automotive revenue sustainability, and tangible progress on AI-related revenue streams. Without evidence of these improvements, the current price reflects unwarranted optimism rather than fundamental strength.

Thesis delta

The new article does not shift the core thesis from the DeepValue report, which remains a potential sell due to structural issues like underutilization and overvaluation. It reinforces a bullish market narrative but lacks substantiation from recent financial data, highlighting the divergence between promotional content and hard evidence. No change in investment rationale is warranted; investors should maintain a critical stance and await clearer signs of operational improvement.