GlobalFoundries Q1 Results Slightly Beat Expectations, Target Price Raised to $77

Overview

UBS released an earnings review report on GlobalFoundries (GFS.US). The report indicates that GlobalFoundries' first-quarter results slightly beat expectations, with revenue meeting expectations and gross margin and operating expenses outperforming forecasts. Communication Infrastructure & Data Center (CID), Automotive and Technology Services businesses show good growth momentum, while the smartphone terminal market remains weak. Looking forward, UBS slightly adjusted 2026-2027 earnings estimates, and due to valuation multiple increase, raised the 12-month target price from $65 to $77. However, considering potential drag from the smartphone market and the likelihood that the optical supply chain theme may already be reflected in the stock price, UBS maintains a neutral rating for GlobalFoundries and continues to prefer Broadcom (AVGO) as a beneficiary in the networking field.

Core views

GlobalFoundries' first-quarter results were solid, with revenue of $1.634 Billion meeting expectations, gross margin reaching 29%, exceeding UBS and market expectations by 150-200 bps, and operating expenses also lower than expected. By segment, Communication Infrastructure & Data Center (CID), Automotive and Technology Services revenue all achieved growth, becoming highlights. Particularly SiGe/SiPho technology development momentum is strong, the company expects 2026 SiPho revenue to double to $400 million, and plans to reach $1 billion by 2028. However, the smartphone market continued to slump, dragging overall performance. For the second quarter, management guided revenue mid-point at $1.76 Billion, in line with expectations, but gross margin guidance was 28.5%, down 50 bps quarter-over-quarter, which UBS considers low. For the full year, UBS expects 2026 revenue to be $7.31 Billion, slightly higher than previous expectations and market consensus, while expecting Q4 gross margin to potentially reach 31.5%. Despite this, potential smartphone market recovery could pose slight pressure on gross margins. Based on assessment of company prospects, UBS slightly adjusted 2026 and 2027 EPS estimates, from $1.84/$2.63 to $1.96/$2.62 respectively. More importantly, UBS increased valuation multiples from approximately 25x to approximately 29x, aligning it with peer levels, thereby significantly raising the 12-month target price from $65 to $77.

Analysis framework

UBS analysis started with a performance review, comparing GlobalFoundries' actual financial data (revenue, gross margin, operating expenses, EPS) against its own forecasts (UBSe) and general market expectations (Street) to judge if results beat expectations. Next, analysis delved into performance across business segments, identifying growth drivers (such as CID, Automotive, Technology Services) and headwinds (such as Smartphones). On this basis, analysts updated financial forecasts for upcoming quarters and full years (including revenue, gross margin, EPS). Finally, the report adopted PE relative valuation method, multiplying updated CY27E EPS by an adjusted, more competitive P/E multiple (~29x) to derive the new target price. The entire process reflects a typical company research analysis path: 'Performance Verification -> Segment Breakdown -> Expectation Revision -> Valuation Repricing'.

Methodology notes

• Valuation MethodPE/PEG valuation

  Price-to-Earnings (P/E) Relative Valuation

  This method evaluates valuation by comparing current stock price to EPS ratio (i.e., P/E). UBS builds GF's target price on CY27 expected EPS ($2.62) and a ~29x P/E multiple. This belongs to relative valuation, usually comparing this multiple with company historical levels or average multiple of industry peers to judge if valuation is overvalued or undervalued.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Revenue Growth Volume-Price Decomposition

  When analyzing semiconductor company revenue growth, often split into 'Volume' (Wafer Shipments) and 'Price' (Wafer ASP) two driving factors. Report mentions expectations for these two indicators (e.g., Wafer Shipments YoY growth 11% in 2027, ASP YoY growth 4%), which is fundamental analytical framework for understanding company future revenue and profit potential.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Free Cash Flow (FCF) Analysis

  Free cash flow is important metric measuring real profitability, referring to operating cash flow minus capital expenditure required to maintain or expand asset base. Report points out GlobalFoundries Q1 free cash flow was $233 million, below UBS and market expectations, mainly because working capital status only neutral and capital expenditure at high level. This reminds investors that even if net profit meets standards, cash flow status could constitute risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GlobalFoundries Inc (GFS.US)

  Core subject of analysis for GF, results slightly beat expectations, benefited from CID and auto business growth, but weighed down by weak smartphone market.

  Strengths

  CID business strong, SiGe/SiPho tech leading, Auto and IIoT business growth momentum good, product mix optimization brings margin improvement.

  Weaknesses

  Smartphone terminal demand continues to be weak, constitutes main drag. Free cash flow performance below expectations.

  Comparison

  UBS believes its position in optical supply chain recognized by market, but prefers Broadcom (AVGO) as investment choice in networking field.

  Risks

  Mature process capacity expansion leads to oversupply; client reshoring efforts slow; Gov subsidies fall short of expectations.

• Advanced Micro Devices Inc (AMD.US)

  GF predecessor, but report does not deeply discuss AMD direct benefit/harm situation.

  Strengths

  -

  Weaknesses

  -

  Comparison

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  Risks

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• ProShares Ultra Semiconductors (USD.US)

  Semiconductor Industry ETF, GF is one constituent stock, its performance will be affected by GF stock price fluctuation.

  Strengths

  -

  Weaknesses

  -

  Comparison

  -

  Risks

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Key data

• Q1 Revenue$1.634 BillionIn line with expectations
• Q1 Gross Margin29%150-200 bps above expectations
• Q2 Revenue Guidance Mid-point$1.76 BillionIn line with expectations
• 2026 Full Year Revenue Expectation$7.31 BillionBasically unchanged, slightly above market consensus
• 2026 Q4 Gross Margin Expectation31.5%UBS forecast, above management 30%+ target
• 2026 Smartphone Market ExpectationYoY decline approx 7-8%Slightly worse than previous forecast
• 2026 EPS Expectation$1.96Raised from $1.84
• 2027 EPS Expectation$2.62Micro-adjusted from $2.63
• Target Price$77.00Raised from $65.00
• Valuation Multiple~29xApplied to 2027 EPS, raised from ~25x

Impact & implications

UBS believes GF's recent positive performance mainly benefits from favorable product mix (especially CID and auto business growth) and leadership in optical tech (SiGe/SiPho). These factors drove margin recovery and future growth expectations. However, report also points out that persistent weakness in smartphone market is a significant headwind. Although target price is significantly raised, reflecting increased market recognition of GF's transformation and growth story, UBS maintains neutral rating, indicating it believes current stock price reflects most positives, leaving limited upside potential. For investors, this means GF may not be a high-elasticity bet, and its stock performance will track more closely with its fundamental execution and overall semiconductor cycle.

Risks

• Accelerated mature node capacity expansion leading to industry oversupply.
• Client reshoring efforts slowing down.
• Government subsidies below expectations.
• Smartphone market recovery could pose slight pressure on gross margins.

What to watch

• More details announced at upcoming Analyst Day (Thursday's Analyst Day), specifically regarding SCALE CPO products and growth capex plans.
• Continued growth momentum of Communication Infrastructure & Data Center (CID) and Automotive businesses.
• Signs of recovery in the smartphone market.
• Improvement in Free Cash Flow.