GlobalFoundries (GFS.US) receives support from the US and Japan to expand US production capacity; Morgan Stanley: asset-light expansion expected to boost profitability

According to The Smart Finance App, Morgan Stanley released a research report on October 15, stating that GlobalFoundries (GFS.US) has been selected as the technology provider and operator for two new 300mm wafer fabs at its Malta, New York campus. Japan will provide up to $21 billion in funding for the project based on the US-Japan trade agreement. In addition, the US CHIPS Program Office will reallocate the previously awarded $955 million to GlobalFoundries for R&D and capital expenditures starting in 2027, and the US Department of Commerce will receive about a 4% equity stake in GlobalFoundries. Morgan Stanley believes the agreement is positive for GlobalFoundries, as it is likely to significantly increase its earnings potential without capital expenditure and highlights its strategic value as the only large-scale foundry in the US.

The Project Proceeds in Two Phases, Each With Annual Capacity of About 900,000 Wafers

The project will be executed in two phases, with each phase having an annual capacity of approximately 900,000 wafers. Phase one will start construction this quarter, with equipment installation expected to be completed by 2028 and the first batch of wafers produced by 2029. The final decision on phase two will be made by the end of 2028. GlobalFoundries’ current total capacity is about 2.8 million wafers, and this project presents an opportunity to expand production by around 1.8 million wafers with external funding. The benefits of this new structure will become apparent over time, but it is expected to reduce utilization risk for capacity growth after 2028.

US and Japan Set Up SPV, GlobalFoundries Charges Management and Technology Fees

Structurally, the Japanese government will fund the establishment of a special purpose vehicle (SPV), jointly owned by both the US and Japan. The SPV will bear all project capital expenditures and fab operations and will receive wafer revenues from clients. GlobalFoundries will provide process technology and manage the construction and operations of the fabs. In return, GlobalFoundries will charge construction management, operations management, and technology fees, with technology fees commencing next year and continuing for at least 20 years. To incentivize improved fab performance, GlobalFoundries will also share EBITDA. The new fab will use existing infrastructure and services at Malta, with related costs reimbursed by the SPV.

Additionally, as a separate agreement, the US CHIPS Program Office will, starting in 2027, reallocate the previously awarded $955 million in CHIPS funding to GlobalFoundries for R&D and capital spending, with a focus on technologies such as silicon-germanium, silicon photonics, and interposers.

EPS Expected to Increase by $0.10–0.15 Next Year

Financially, GlobalFoundries stated that the project’s returns are equivalent to what the company would earn per wafer if it funded and owned the project itself, but without needing to make capital investments or bear utilization or market risks of owning and operating the fab. The company expects the project to add $50 million in revenue next year, increase gross margin by 30–50 basis points, boost operating margin by 100–200 basis points, and increase EPS by $0.10–0.15. In the long term, as capacity ramps up, these metrics should improve further: gross margin up by 100–200 basis points, operating margin up by 200–300 basis points, EPS up by $0.50–0.75, and cumulative adjusted free cash flow over ten years of around $3 billion. Morgan Stanley noted that these targets are incremental to the long-term financial model disclosed at this year’s Investor Day.

Morgan Stanley Assigns ‘Hold’ Rating with $60 Target Price

Morgan Stanley believes this progress clearly demonstrates the tailwinds from GlobalFoundries’ transformation efforts and underscores the strategic value of its US production capacity. These tailwinds are expected to help GlobalFoundries shift revenue from consumer markets to more strategically important, faster-growing, and less price-sensitive markets such as data centers, industrial, and automotive. With current annual capacity of about 2.8 million wafers and an additional 900,000 wafers from phase one, earnings potential could be boosted by around 30% with lower risk, benefiting its valuation multiple. This asset-light model means GlobalFoundries can maintain a net cash balance sheet and continue to return cash to shareholders.

Morgan Stanley assigns a “Hold” rating to GlobalFoundries with a target price of $60, roughly corresponding to 25 times 2027 expected EPS of $2.44. This valuation is at a premium to Asian mature-process foundry peers while being in line with US semiconductor customers.