Wafer price increases and utilization recovery are expected to accelerate GlobalFoundries' earnings in 2027

Overview

GlobalFoundries' second-quarter results were mixed: second-half revenue guidance was acceptable, the outlook for data center silicon photonics and silicon germanium businesses improved, but operating expense dilution from M&A was higher than expected, and smartphone end demand weakened further. The most important new information highlighted in the report is that the company has successfully driven wafer price increases across multiple technology platforms, which are expected to be reflected in revenue starting in 2027. Combined with product mix improvement and capacity utilization rising toward the low 90% range, revenue growth is expected to translate into stronger profit growth.

Core views

The core basis for maintaining the Buy view is the inflection point in pricing and operating leverage in 2027. GlobalFoundries has ready 300mm capacity and can significantly expand silicon photonics capacity within existing fabs, giving it an opportunity to win orders from pluggable optical module makers and large cloud service providers while Tower Semiconductor expands new capacity. However, the company needs to prove that its silicon photonics yield can approach Tower Semiconductor's level, while controlling operating expenses and maintaining reasonable gross margins. Taking these execution risks into account, the report lowers its 2028 non-GAAP EPS forecast and target price, but believes the current valuation discount already provides some upside potential.

Analysis framework

The report builds earnings expectations by combining quarterly operating updates, end-market demand, wafer pricing, product mix, capacity utilization, and expense forecasts, and sets the target price based on the expected 2028 P/E ratio, while testing valuation reasonableness through comparisons with Tower Semiconductor's P/E ratio and enterprise value multiples.

Methodology notes

• Fundamental analysisEarnings forecast and operating leverage analysis

  Forecast revenue and EPS based on changes in wafer prices, product mix, capacity utilization, and operating expenses.

  The report expects wafer price increases to begin contributing to revenue in 2027 and utilization to rise toward the low 90% range, so 13% sales growth can drive 36% non-GAAP EPS growth; it also incorporates higher expenses and silicon photonics gross margin risks into the 2028 forecast.

• Valuation analysisForward P/E ratio and comparable company valuation method

  Multiply target-year earnings by a reasonable P/E ratio and cross-check against the closest comparable company.

  The USD 75 target price corresponds to about 21x expected 2028 P/E; compared with Tower Semiconductor's market consensus expectations, GlobalFoundries' 2028 P/E and enterprise value multiples are discounted by about 20% and 40%, respectively.

Asset mapping & comparison

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

• GLOBALFOUNDRIES INC（US.GFS）

  Primary covered company in the report

  Strengths

  Wafer price increases have been implemented across multiple technology platforms, the company has ready 300mm capacity, silicon photonics capacity can be significantly expanded within existing fabs, and higher utilization offers strong operating leverage.

  Weaknesses

  Its sales mix and scale in AI data center silicon photonics lag Tower Semiconductor, smartphone demand is weak, and M&A-related expenses are higher than expected.

  Comparison

  Compared with Tower Semiconductor, its expected 2028 P/E is discounted by about 20% and its enterprise value multiple by about 40%; the report believes part of the discount is justified, but the current discount still provides room for re-rating.

  Risks

  Silicon photonics yield and gross margin falling short of expectations, capital expenditure for new capacity, continued weakness in the smartphone market, and share sales by Mubadala.

• Tower Semiconductor

  Comparable company for silicon photonics business and valuation

  Strengths

  It has a leading position in AI data center silicon photonics and has secured sizable orders and customer partnerships.

  Weaknesses

  Existing capacity is constrained, requiring new capacity expansion near the Uozu 300mm fab.

  Comparison

  GlobalFoundries currently lags in silicon photonics exposure and yield validation, but a supply window may emerge during Tower Semiconductor's expansion, giving GlobalFoundries an opportunity to narrow the gap in 2027—2028.

  Risks

  If expansion proceeds smoothly and customers are locked in through long-term purchasing or volume commitment agreements, GlobalFoundries' opportunity window to catch up may narrow.

Key data

• Investment ratingBuyMaintains the previous rating, with a 12-month assessment period.
• Target priceUSD 75.00Lowered from USD 80.00, corresponding to about 21x expected 2028 P/E.
• Reference share priceUSD 53.93As of August 7, 2026.
• Target upside39%Calculated based on the report's target price and reference share price and explicitly disclosed in the report.
• 2027 sales growth forecast13%Supported by wafer price increases, product mix improvement, and higher utilization.
• 2027 non-GAAP EPS growth forecast36%Earnings growth exceeds revenue growth, reflecting operating leverage.
• Silicon photonics demand growth77% compound growth over the next three yearsDeutsche Bank's demand assessment.
• Silicon photonics capacity potentialAbout 10 times current capacityManagement indicated this can be achieved within the footprint of existing fabs.
• 2028 non-GAAP EPS forecastUSD 3.54Cut by 8% from USD 3.85, mainly reflecting higher operating expenses and silicon photonics execution risks.
• 52-week share price rangeUSD 31.62—89.96The 52-week trading range disclosed in the report.

Impact & implications

If wafer price increases are realized as scheduled in 2027, utilization rises to the low 90% range, and silicon photonics yields improve, GlobalFoundries could enter a phase of synchronized acceleration in revenue and profit, with non-GAAP EPS growth likely to significantly exceed sales growth. Tower Semiconductor's near-term capacity constraints may also provide GlobalFoundries with a window to win AI data center-related orders in 2027—2028. Conversely, if silicon photonics yields, gross margins, or customer qualifications fall short of expectations, incremental expenses and potential capital expenditures could weaken operating leverage and limit the narrowing of the valuation discount.

Risks

• Silicon photonics product yields may fail to reach levels comparable to Tower Semiconductor, affecting customer qualification and scaled ramp-up.
• Sustained silicon photonics gross margins may be lower than expected, weakening the conversion of revenue growth into profit.
• Operating expenses, especially M&A-related expenses, may continue to exceed expectations.
• If existing fab capacity is insufficient, new greenfield fabs could create significant capital expenditure requirements.
• Weakness in the smartphone market may last longer than expected, offsetting growth in the data center business.
• Execution of wafer price increases or customer acceptance may fall short of expectations, delaying revenue improvement in 2027.
• Controlling shareholder Mubadala may reduce its holdings, creating share supply pressure.
• Deutsche Bank and its affiliates have investment banking and other compensated business relationships with the company, and investors should pay attention to potential conflicts of interest.

What to watch

• The actual realization magnitude and coverage of wafer price increases in 2027 revenue.
• Whether capacity utilization can rise to the low 90% range as expected.
• The pace of silicon photonics capacity expansion, mass production yields, and gross margin performance.
• Customer qualification and order progress from pluggable optical module makers and large cloud service providers.
• The construction pace of Tower Semiconductor's new Uozu capacity and customer lock-in status.
• Whether smartphone end demand stabilizes, and whether data center growth can fully offset its drag.
• Subsequent changes in operating expenses, M&A dilution, and the 2028 non-GAAP EPS forecast.
• Mubadala's shareholding and potential share sale arrangements.