GlobalFoundries (GFS): A Strategic Play on AI and Automotive Growth Amid Sector Downturns

The semiconductor sector has been a rollercoaster for investors in 2025, with macroeconomic headwinds and sector-specific volatility creating a fog of uncertainty. Yet, amid the chaos, GlobalFoundries (GFS) stands out as a rare combination of defensive resilience and forward-looking growth. By leveraging non-IFRS outperformance, strategic acquisitions, and a bold China-for-China strategy, GF is not just weathering the storm—it's positioning itself to dominate the next phase of the AI and automotive revolutions. Let's break down why this is a compelling long-term play.

Non-IFRS Outperformance: A Window into Core Strength

When the dust settles on quarterly earnings, the real story often lies in the adjusted numbers. In Q4 2023, GlobalFoundries' non-IFRS metrics painted a far rosier picture than its IFRS results. Adjusted gross margin hit 29.0%, up from 28.3% under IFRS, while adjusted operating margin surged to 20.7% from 16.3%. This $80 million boost in operating profit was driven by the exclusion of share-based compensation and restructuring charges—costs that distort the view of core operational performance.

Why does this matter? For investors, it's a signal that GF's underlying business is robust. The company's ability to maintain margin resilience while investing in growth initiatives—like its $16 billion U.S. reshoring push—shows discipline. Even as peers like TSMC and Intel face margin compression, GF's non-IFRS metrics suggest it's better insulated from short-term noise.

Strategic Acquisitions: MIPS and the China-for-China Play

GF's recent acquisition of MIPS Technologies is a masterstroke. By integrating MIPS' RISC-V processor IP and real-time computing software, GF is now offering customers a tailored solution for AI and automotive applications. This isn't just about selling wafers—it's about becoming a one-stop shop for end-to-end solutions. The automotive segment, in particular, is a goldmine: Q2 2025 revenue hit $368 million, a 36% year-over-year jump, driven by design wins with 25 unique customers.

But the real game-changer is the China-for-China strategy. By partnering with a local Chinese foundry, GF is securing domestic production for automotive-grade chips, bypassing the geopolitical risks of relying on U.S. or Taiwanese suppliers. This move taps into China's insatiable demand for semiconductors—projected to grow at 12% annually through 2030—while aligning with Beijing's push for self-sufficiency.

Critics may argue that GF's market share in China remains small compared to SMIC. But in a fragmented market where localized production is king, GF's partnerships and IP-driven value proposition are carving out a niche. This isn't about competing with SMIC—it's about filling gaps in the supply chain that U.S. export restrictions have left open.

Reshoring and AI-Driven Resilience

The U.S. CHIPS Act isn't just a policy win—it's a tailwind for GF's $16 billion reshoring plan. By anchoring its New York and Vermont facilities with 22FDX® and silicon photonics tech, GF is becoming a critical node in the domestic semiconductor ecosystem. Partnerships with Apple, SpaceX, and AMD underscore its role in securing supply chains for mission-critical applications, from iPhones to Starlink satellites.

Meanwhile, the AI boom is a tailwind no one can ignore. GF's advanced packaging and GaN technologies are essential for power-efficient AI chips, a sector expected to grow at 40% annually. With AI demand outpacing supply, GF's ability to deliver customized solutions for datacenters and edge devices gives it a moat against commoditization.

Why This Is a Defensive-Growth Play

GF's diversified exposure to automotive, AI, and reshoring trends makes it a rare hybrid: a defensive stock with growth upside. Even if the broader semiconductor sector stumbles, its automotive segment—now 22% of revenue—is a stable cash cow. The China-for-China strategy and U.S. reshoring efforts further insulate it from geopolitical shocks.

Moreover, GF's free cash flow generation is a standout. In 2025, it's on track to generate $1 billion in adjusted free cash flow, providing flexibility to reinvest in R&D or return capital to shareholders. At a forward P/E of 12x, GF trades at a discount to peers like TSMC (25x) and Intel (18x), making it an undervalued gem in a sector where multiples are under pressure.

The Bottom Line

GlobalFoundries isn't just surviving the semiconductor downturn—it's thriving by doubling down on what matters: margin resilience, strategic IP, and localized production. For investors seeking exposure to AI and automotive growth without the volatility of pure-play fabless companies, GF offers a balanced bet.

In a world where supply chains are fracturing and AI is reshaping industries, GF's playbook is simple: adapt, localize, and innovate. This is the kind of company that turns headwinds into tailwinds—and right now, the winds are in its favor.

Investment Takeaway: Buy GlobalFoundries (GFS) for its non-IFRS-driven margin resilience, strategic IP acquisitions, and reshoring-led growth. Hold for 12–18 months, with a price target of $25 (50% upside from current levels).