My bullish case for GlobalFoundries (GFS) via /r/wallstreetbets #stocks #wallstreetbets #investing

I was gonna post this to r/investing or r/stocks, but I figured you all fellow degenerates would appreciate a pretty, cheap-ish curve for a company with massive potential.

In this post:

  • Industry prospects
  • Last year’s pre-IPO valuation
  • Geopolitical relevance of GFS
  • If it’s so great, why the current sell pressure?

So, here we go…

You all know the silicon industry needs growth, as demonstrated by the recent chip shortage. Beyond the obvious, let me make a couple of bullish points:

  • The silicon industry needs to grow in order to maintain the growing demand for electronic products
  • The electronics industry is moving towards more extensive use of custom silicon for all sorts of applications.
    • I could elaborate on this point for hours, but it’s driven by: design tech advancements, miniaturization requirements, hardware acceleration, hardware security, open-source silicon architectures, computing decentralization, the approaching death of Moor’s Law, chip manufacturing cost decrease for older techniques, etc. etc. etc.

So the silicon industry already lacks supply capacity (🐂), while demand for electronic products keeps growing (🐂), and new electronic systems are expected to shift a lot of demand from design+fab houses (TI, Intel, etc.) to contract manufacturers like TSMC/GFS (🐂).

This ain’t the kind of bull that eats grain and bathes in the sun like a goddamn vegan. This one will fuck your wife.

There were rumors last year regarding a potential acquisition of GFS by Intel. The Wall Street Journal estimated the discussed acquisition value at “around $30 billion”.

It’s important to note that such an acquisition would probably have probably brought an end to GFS’ contract manufacturing business model. That business model positions them to take some of TSM’s market share, at a great time for the upcoming expansion of custom silicon. So I’m glad the acquisition did not go through.

Their market valuation at the time of writing is $35B. For comparison, TSMC (the undisputed king of contract silicon manufacturing), is currently valued at $553B.

The digitalization of EVERYTHING, from dildos to weapons, has turned chip fabrication into a matter of very serious geopolitical interest.

As discussed, TSMC/TSM is the absolute king of contract chip manufacturing. Let’s compare fab locations for both companies:

🐂 GFS fabs:

  • Singapore (5)
  • USA (3)
  • Germany (1)

🐻 TSMC fabs:

  • Taiwan (14)
  • China (2)
  • USA (1)

Given the geopolitical tensions between China and Taiwan, and the uncertainty triggered by Russia’s war in Ukraine, relying so much on TSMC for the worldwide supply of critical chipsets is reaching an absolutely unacceptable point for western democracies. The expansion of western chip fab capabilities is of critical strategic importance in case of a large-scale conflict (be it military or economic) with China.

That has been known for years, which is why western countries have been pouring resources into companies like GFS. e.g. GFS is one of the partners in the IPCEI (Important Projects of Common European Interest). I can only expect that support to grow parallel to the China-Taiwan tensions (🐂).

The only drawback I find to this thesis is the fact that GFS is majority-owned (88%) by a United Arab Emirates sovereign fund. I’m not a big fan of injecting western, democratic cash into an authoritarian regime with strong economic ties to Russia, and I’m not sure how that situation could influence the stock price (🐻?). But we’re already funding some of those efforts, and have more significant economic ties to the Emirates, so I guess it’s not that big of a deal?

Who knows, but I’m sure gonna take advantage of it.

All I know regarding the current sell pressure is that 20.94% of the float is openly shorted, and 49.65% of the off-exchange volume are shorts. I have no clue what to do with that information, but I do believe those bets are large enough to influence the price action in the short term, so I’m gonna enjoy the dip while it lasts.

The End.

That’s my thesis, and I’m sticking to it. At the moment, about a third (in size) of all my open positions are GFS calls.

Submitted March 31, 2022 at 04:52PM by Palantir555
via reddit