On Monday, GlobalFoundries Inc. (NASDAQ:GFS) experienced a shift in its stock rating as Cantor Fitzgerald adjusted its stance on the semiconductor manufacturing company. The firm downgraded the stock from Overweight to Neutral and concurrently reduced its price target to $55 from the previous $70. This change comes amid concerns regarding the company's near-term revenue prospects and gross margin performance.
The downgrade was influenced by the recent loss of a significant I/O business from AMD (NASDAQ:AMD) and an anticipated sluggish recovery in the Mobility sector. These factors have raised questions about GlobalFoundries' revenue outlook for the year 2025. Despite indications that the business may have reached its lowest point, the recovery is expected to be slow.
Cantor Fitzgerald highlighted that the current gross margin run-rate for GlobalFoundries is very low, primarily due to underutilization. This situation is projected to lead to only a modest improvement over time. With these challenges in mind, the firm expressed apprehension about the potential for significant stock appreciation in the absence of more strategic developments within the company.
The analyst's commentary on the downgrade emphasized concerns about the future revenue recovery for GlobalFoundries, pointing out: "Led by loss of I/O AMD business combined with expected very slow recovery in Mobility, we worry about what a 2025 revenue recovery looks like for GFS (despite the business bottoming today)."
In addition to the revenue and margin issues, the lack of a strategic angle to the company's story is seen as a factor that could limit upside potential for the stock. The analyst's statement concluded with a cautious outlook: "Add in currently a very low run-rate for Gross Margins tied to weak utilization rates and we model only a very gradual recovery. Absent a more strategic aspect to the story, we fear upside will be very limited."
InvestingPro Insights
As GlobalFoundries Inc. (NASDAQ:GFS) navigates through current market challenges, insights from InvestingPro provide additional context for investors considering the company's stock. Analysts have noted a downturn in earnings expectations for the upcoming period, reflecting concerns similar to those expressed by Cantor Fitzgerald. Additionally, GlobalFoundries is recognized as a significant player in the Semiconductors & Semiconductor Equipment industry, yet it faces expectations of a sales decline in the current year, with net income also projected to decrease.
In terms of financial metrics, GlobalFoundries has a market capitalization of approximately $27.96 billion and trades with a price-to-earnings (P/E) ratio of 27.62, which is adjusted to 25.86 based on the last twelve months as of Q4 2023. Despite recent revenue contraction, the company maintains a healthy financial position, with liquid assets surpassing short-term obligations. Moreover, while the stock has been experiencing volatility and trading near its 52-week low, the company is operating with a moderate level of debt and is expected to remain profitable this year.
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