Why GlobalFoundries Stock Looks Like a Good Investment

The GlobalFoundries IPO has attracted the interest of investors keen to capitalize on the global chip shortage. The company manufactures semiconductor chips on contract for a broad range of customers. Will GlobalFoundries benefit from the chip shortage? Should you buy GlobalFoundries IPO stock?

GlobalFoundries is controlled by Abu Dhabi’s sovereign-wealth fund, Mubadala. The company was formed from merging chipmaker AMD’s manufacturing facilities with Singapore's Chartered Semiconductor's in 2009. The company plans to use its IPO money on capital expenditure and acquisitions.

The company plans to price its shares at $42–$47 in the IPO. Companies sometimes end up pricing their IPOs above their target range when there's strong demand for the stock, or they may expand the offering by selling more shares. Both actions allow a company to make more money than anticipated.

GlobalFoundries, which could hit the market at a valuation of more than $25 billion, has invested $23 billion in its business since it started in 2009. The company plans to offer 55 million shares in the IPO, including 22 million shares being sold by Mubadala. As a result, Mubadala’s stake in the business will drop from 100 percent to 89.4 percent after the IPO, but the Abu Dhabi fund will remain GlobalFoundries’ top shareholder.

GlobalFoundries stock is expected to begin trading publicly on Oct. 28. The timing could be in the morning or afternoon. The stock will be listed on the Nasdaq and trade under the “GFS” ticker symbol.

Mubadala initially aimed to take GlobalFoundries public in 2022 or 2023, but moved up the IPO date in an apparent bid to capitalize on the strong demand for semiconductor stocks amid the global chip shortage. 2021 has been a hot IPO year, with the listing of prominent companies such as Robinhood and Coinbase.

GlobalFoundries is the world’s third-largest contract semiconductor contract manufacturer by revenue behind Taiwan Semiconductor Manufacturing (TSMC) and Samsung Electronics. It has a portfolio of about 10,000 patents. In the first half of 2021, the company’s revenue rose year-over-year by 13 percent to more than $3 billion, and its loss narrowed to $300 million from $534 million.

GlobalFoundries, which produces chips used in laptops, cars, and mobile phones, should get more business from the rollout of 5G networks and the Internet-of-Things' growing adoption. Automotive chips are in particularly high demand now amid the shift to electric and autonomous cars.

The company is expanding its manufacturing capacity to address the strong demand and plans to build a second factory near its New York headquarters. GlobalFoundries operates factories in Singapore and Germany as well. Its future looks promising, and it foresees the semiconductor industry's revenue doubling in 8–10 years. Intel has even considered acquiring GlobalFoundries to bolster its contract manufacturing efforts.

Once GlobalFoundries stock begins trading publicly, you’ll be able to buy it through your regular broker. If you want to get in before the public debut, Robinhood and SoFi offer programs that give clients advance access to select pre-IPO stocks.

Qualcomm, BlackRock, Koch Industries, Fidelity, and Columbia Management Investment Advisers plan to purchase as much as $1.1 billion in GlobalFoundries IPO stock. And Silver Lake, which has a stake in Twitter, has negotiated a private arrangement to invest $75 million in GlobalFoundries. The IPO could raise $1.6 billion for the company.

The global chip shortage has not only boosted demand for semiconductor components, but helped prices. That has put semiconductor companies in a position where they can make more money if they can meet the demand.

Other chip stocks you may want to look at are Intel, Qualcomm, Nvidia, and AMD. Broadcom, Micron, Texas Instruments, and TSMC also offer a good opportunity for investors to not only play the current chip shortage but also the future semiconductor industry boom.