Why GlobalFoundries Rallied 11.4% This Week

Shares of U.S. specialty chip manufacturer GlobalFoundries (NASDAQ: GFS) rallied 11.4% this week, according to data from S&P Global Market Intelligence.

The U.S. foundry, which produces chips on specialty lagging-edge nodes, had an earnings report that encouraged analysts. In addition, Vice President JD Vance made a speech touting domestic U.S. chip manufacturing, which lit a fire under GlobalFoundries and other U.S.-based chipmakers.

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GlobalFoundries beats expectations as it aims for a recovery

In the fourth quarter, GlobalFoundries saw a 1% revenue decline to $1.83 billion, with adjusted (non-IFRS) earnings per share declining 28% year over year to $0.46. Both figures came in ahead of analyst expectations.

While no one likes to see a decline in revenues and earnings, it's also no secret that the chip markets GlobalFoundries serves, including smartphones, the Internet of Things, communications infrastructure, and industrial and automotive chip markets, have been in a downturn. In that light, a mere 1% revenue decline is actually encouraging.

There were also optimistic signs on a sequential basis. Revenue has actually risen sequentially for three straight quarters, and gross margin increased for the first time in a while after three straight quarters of declines. While management guided for a sequentially down quarter, the current Q1 revenue guidance of $1.55 billion to $1.6 billion would amount to a slight year-over-year increase versus Q1 2024. CEO Tom Caulfield also said the company was preparing for a "growth year" in 2025.

Adjusted EPS are supposed to grow just 9% this year to $1.70, but then accelerate another 45% to $2.47 in 2026. Shares currently trade about 17 times those 2026 estimates.

Politics also contributed to the optimistic mood. On Tuesday, Vice President JD Vance made a speech about artificial intelligence (AI) at an International AI summit in Paris. In it, he said, "To safeguard America's advantage, the Trump administration will ensure that the most powerful AI systems are built in the U.S., with American-designed and manufactured chips."

While GlobalFoundries doesn't make the most advanced node chips for AI computing, there are still lots of trailing-edge chips that go into power modules and other server components in AI data centers. And the broader push to bolster U.S. chip manufacturing is likely another tailwind for GlobalFoundries.

GlobalFoundries looks to come out of the down cycle

With the new presidential administration very much on the side of domestic chip manufacturing and GlobalFoundries' current customer end-markets perhaps beginning to come out of their slump, investors were encouraged this week.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.