Semiconductor stocks are having a rough time of things Wednesday, with shares of giants such as Taiwan Semiconductor Manufacturing (NYSE: TSM) falling more than 7% on worries of additional U.S. government interference with the chip market.
One semiconductor stock in particular, however, is having a much better day: GlobalFoundries (NASDAQ: GFS), the contract semiconductor manufacturer that Intel tried (and failed) to buy a few years ago, is up 7% through 12:50 p.m. ET.
Playing politics with semiconductors
What explains investors’ differing treatment of these stocks? The story goes like this: Interviewed by Bloomberg yesterday regarding U.S. security guarantees for Taiwan, once-and-maybe-future President Trump said Taiwan “doesn’t give us anything,” and complained about the country’s dominance in contract chip manufacturing. He said, “We should have never let that happen.”
The implication: If reelected, Trump might aim to reduce dependence on Taiwanese chips. And the unspoken implication: He might impose tariffs on chips sold by Taiwan Semiconductor.
That’s worrying TSMC investors today. Conversely, it’s giving hope to investors in GlobalFoundries, which (1) competes with TSMC, (2) is headquartered in America, (3) does most of its business in the U.S., and (4) has 40% of its production assets here as well.
Is GlobalFoundries stock a buy?
These facts make GlobalFoundries an obvious beneficiary of any U.S. government animus toward Taiwan, even as it insulates GlobalFoundries from current and future potential tariffs on companies selling to China. According to data from S&P Global Market Intelligence, very little of GlobalFoundries’ $7.4 billion in annual sales come from China.
It doesn’t however, necessarily mean that GlobalFoundries stock is a buy.
To the contrary, with a price-to-earnings ratio of 33.5, Global Foundries stock costs more than TSMC (31.1x earnings). The company’s also not a very efficient competitor, boasting a gross profit margin (28%) that’s only half as good as TSMC’s 53.6% margin. GlobalFoundries also has a slower growth rate — 10% versus 21.5%.
While government policy might shift these numbers somewhat, on balance, the simple truth is that TSMC is a better semiconductor stock than GlobalFoundries.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Why GlobalFoundries Stock Soared 7% on Wednesday was originally published by The Motley Fool
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