GlobalFoundries (NASDAQ:GFS) shares rose fractionally in premarket trading on Tuesday as Loop Capital started coverage on the global semiconductor foundry with a buy rating.
Analyst Charles Park noted that GlobalFoundries (GFS) is “ideally positioned” to benefit from a number of secular growth initiatives in key markets, including automotive, internet of things, data center and smart devices.
Park added that the foundry industry is structurally transforming, which should help GlobalFoundries (GFS), due in part to the recent chip shortage, rising geopolitical tensions and the company’s own improving profitability, as gross margins have rose from 15% in 2021 to an estimated 28% in 2022, with “room for further improvement” towards the company’s stated goal of 40%.
“We are in an early stage of this growth for the semiconductor industry, with the foundry industry poised to benefit from the long-term secular trends,” Park wrote in the note to clients. Park also has a per-share price target of $70 on the stock.
In addition, Park noted that while the semiconductor industry is still cyclical, with each cycle lasting between three and four years, the current down-cycle is “already well underway” and should bottom this year with an expectation of an 11% decline.
And with expectations that the inventory correction should be over by the first half of the year, there is likely to be a recovery in the second-half and semiconductor stocks should continue the trend of anticipating the bottom “a couple of quarters ahead.”
Last month, GlobalFoundries (GFS) was added to the Nasdaq 100, effective December 19.