Needham lifts GlobalFoundries to Buy on expected return to growth

Investing.com -- Needham analysts lifted their GlobalFoundries (NASDAQ:GFS) stock rating to Buy on Wednesday, pointing to an improved outlook for the semiconductor company.

The investment banking firm anticipates a return to year-over-year growth in 2025 for GFS, and expects a “meaningful gross margin (GM) expansion through the year.”

Needham forecasts a GM of approximately 30% by the fourth quarter of 2025, which is a significant increase from their previous estimate of 26.8%.

This surge is expected to come from higher utilization levels and a reduction in variable costs, as well as a decrease in depreciation due to a $935 million impairment charge on legacy assets in the fourth quarter of 2024.

GlobalFoundries is expected to return to growth in various segments, particularly in Automotive and Communication Infrastructure and Data Center sectors.

The company’s management anticipates similar growth in Automotive as seen in the fiscal year 2024, with a 15% year-over-year increase, and significant growth in Communication Infrastructure and Data Center, driven by demand in optical transceivers, SATCOM applications, and partnerships with AI companies.

While the Smart Mobile Devices segment is expected to remain flat year-over-year, any potential upside is believed to be linked to an AI refresh cycle. Moreover, the Home and Industrial IoT segment is showing signs of recovery, with modest growth anticipated in 2025 after bottoming out in 2024.

Needham also suggests that owning GlobalFoundries stock could serve as a hedge against escalating tensions between the US and China.

“If the US government were to implement excessive tariffs or China takes actions against Taiwan, we believe GFS would benefit as customers would likely increase on-shore production and manufacturing,” analysts wrote.

“Management revealed they have already had conversations with customers surrounding diversifying their supply chains and multi-sourcing,” they added.