GlobalFoundries Stock Slump Continues Amid Chip Sector Concerns

GlobalFoundries shares fell 13.8% in September 2024, continuing a trend of negative returns this year. The company is struggling amid reduced demand and excessive inventory issues while competitors thrive in the AI boom, reflecting broader challenges in the semiconductor sector.

Date: 04-10-2024

AI Rating: 4

GlobalFoundries (NASDAQ: GFS) experienced a significant decline of 13.8% in September 2024, part of a larger trend affecting the semiconductor sector, which is grappling with geopolitical and economic concerns. Despite some recovery among other semiconductor stocks, GlobalFoundries' persistent struggles have led to a 36% drop in stock price for the year. Investors are familiar with the company's negative monthly returns, with six months already showing red ink in 2024.

The primary factor for GlobalFoundries' continued decline is its lack of involvement in the booming artificial intelligence (AI) sector. During its latest earnings discussions, the company failed to mention AI, focusing instead on its clients in the smartphone, automotive, and IoT markets. While these sectors are generally robust, issues such as surplus inventory have negatively impacted sales growth for GlobalFoundries, as opposed to its larger rival Taiwan Semiconductor Manufacturing, which has benefitted from the demand fueled by the AI sector.

Negative sales growth is a concerning indicator feeding into investor sentiment. Revenue in the semiconductor sector appears to be recovering from early-year lows, particularly in the automotive segment. However, GlobalFoundries is facing challenges regarding its profit margins, being consistently less profitable compared to Taiwan Semiconductor. This disparity becomes more pronounced in adverse market conditions, which the company is presently navigating.

The report notes that despite recent declines, GlobalFoundries is still considered a pricey stock, raising caution for potential investors. It also indicates that despite returning to some revenue growth, the overall picture remains lackluster, leading to a recommendation to seek more affordable investment options in the semiconductors infrastructure space.

Stocks: GFS