Why GlobalFoundries Shares Are Down 14% Last Month

Actions of GlobalFoundries (GFS 2.00%) fell 13.8% in September 2024, according to data from S&P Global Market Intelligence. The overall chip sector took a nosedive in the first week of September due to geopolitical and economic concerns. Most of the price declines reversed into modest gains by the end of the month, but this semiconductor manufacturing specialist remained down.

Why has this semiconductor infrastructure player lagged other stocks in the same industry? Let’s take a look.

Why GlobalFoundries Continues to Slide Lower

This is not a new development for GlobalFoundries. In fact, investors are getting used to negative monthly returns in 2024. With nine months of market action in the books, six of them have shown GlobalFoundries returns in red ink. Overall, the stock is down 36% in 2024, while a bigger rival Taiwan Semiconductor Manufacturing saw a 73% price gain.

The main reason behind the GlobalFoundries stock chart is simple. The company is not playing a big role in the current artificial intelligence (AI) boom. The most recent earnings report, earnings presentation and earnings call did not include the words “AI” or “artificial intelligence” even in passing. Instead, GlobalFoundries’ customers primarily serve the smartphone, automotive and Internet of Things (IoT) markets. These are generally healthy growth sectors, but their sales channels have been clogged with excess inventory in recent quarters.

As a result, GlobalFoundries is experiencing negative sales growth, while Taiwan Semi (and the AI-based chip sector) is enjoying robust growth. GlobalFoundries offered no new signs of a different story in September, so the stock never recovered from the early decline.

Things are looking good, but this is still an expensive stock

The semiconductor sector comes with cyclical trends, and GlobalFoundries has seen a decline in the first half of 2024. Revenue is already recovering from record lows, boosted by stronger demand from the auto industry.

At the same time, investors should keep a close eye on the company’s weaker gross margins. GlobalFoundries has always been less profitable than its larger rival, from the top of the income statement to the bottom. This burden only becomes heavier in difficult market conditions, such as the current financial weakness crisis.

The stock isn’t exactly cheap, despite recent price drops. If you’re looking for an affordable stock in the semiconductor infrastructure sector, I’d punt on this idea for further review and double down on more affordable ideas in this space.