High Valuations

The smoothing out of the industry's cyclicality is also a function of the demand for chips. Chips are everywhere. The shift to cloud, the emergence of the Internet of Things (IoT), the rise of 5G, the increasing importance of artificial intelligence (AI) and next-generation auto chips are, to quote the company's F-1 registration form, "driving a new golden age of semiconductors". This market will be worth $1 trillion by the end of the decade, double its present valuation.

GlobalFoundries believes that as of 2020, it has an estimated serviceable addressable market (SAM) of around $54 billion, based on data from Gartner.

Semiconductors have often suffered from the ill effects of the asset growth effect. The asset growth effect is an observable phenomenon in which low asset-growth stocks outperform high asset-growth stocks. In other words, as investment increases, future returns decline. This is because industries in which businesses are expanding are doing so because the returns are attractive. That attracts other businesses and eventually, supply is in excess of demand, and prices collapse until supply and demand are in equilibrium. With concentration and rising demand, cyclicality is much more moderated and the landscape supports high valuations.