Morgan Stanley downgraded Global Foundries to Equal Weight from Overweight, citing anticipated wafer pricing pressures from competitors like TSMC and Chinese foundries.
The Wall Street giant highlighted concerns about the potential for an oversupply in the market, especially as China continues to expand its manufacturing capabilities.
GFS shares fell 1% in premarket trading Monday.
Morgan Stanley analysts pointed to a drop in utilization rates for Vanguard in the fourth quarter of 2024, as the company loses market share to Chinese competitors. Moreover, TSMC is expected to lower prices for mature node wafers (above 7nm) by 2-3% in 2025 to mitigate antitrust risks and balance its price hike in leading-edge technology.
Consequently, tier 2 foundries may reduce prices by 4-5% to maintain their market positions.
For instance, if TSMC's 28nm wafer is priced at $3,000 in 2024, it is projected to fall to $2,900 in 2025. In comparison, China's foundries like SMIC have already reduced their 28nm wafer prices to the $2,200-2,300 range, which suggests that UMC and Global Foundries may lower their prices from the current $2,800 to about $2,500-2,600 in 2025.
Accordingly, Morgan Stanley has revised its outlook for Global Foundries, maintaining a positive view of the company “but with slower end market recovery and competitive overhang, there is a lack of catalysts near term,” analysts led by Charlie Chan said.
They have trimmed their 2025 estimates, taking into account a slower recovery in the mobile/IoT sectors and more stable rather than accelerating growth in the automotive sector, with additional risks arising from wafer pricing competition.
Analysts have also slashed their GFS price target to $43 from $53.
Moreover, they have cut their UMC rating to Equal Weight due to the margin downside in 2025 and reduced their price target to NT$52 from NT$60.
“We are not Underweight UMC given its 12nm is progressing well at Intel’s fab, and is likely to start mass production in late 2026,” analysts noted.
Meanwhile, Chan and his team reiterated an Underweight rating on Vanguard, SMIC, and PSMC and an Overweight rating on TSMC.