GlobalFoundries Inc. GFS is starting to show that its AI opportunity is not limited to direct exposure to GPUs or leading-edge logic chips. Instead, the company is benefiting from the broader infrastructure required to support AI, including silicon photonics, silicon germanium, automotive semiconductors, embedded memory and industrial connectivity.
The first quarter of 2026 suggests that strategy is beginning to pay off. While first-quarter revenues increased a modest 3% year over year to $1.63 billion, the more important story was profitability. Gross margin (Non-IFRS) expanded to 29%, up from 23.9% a year earlier, a remarkable 510-basis-point improvement and the largest year-over-year expansion in more than three years. Management now expects another quarter of roughly 28.5% gross margin despite ongoing investments in capacity and technology. The improvement was driven by a richer revenue mix, with Communications Infrastructure and Data Center revenues climbing 32% to $230 million. Management expects silicon photonics revenues to roughly double in 2026 and forecasts high-30% growth for the broader segment.
The margin implications could be meaningful. Management described silicon germanium, another key optical networking, as margin accretive and said demand is strong enough that capacity at its Vermont fab is oversubscribed well into 2027. GlobalFoundries is expanding capacity in silicon photonics, FDX and high-performance SiGe to meet customer demand, but these investments are being targeted toward higher-value technology corridors rather than broad commodity capacity.
GlobalFoundries is also extending its AI exposure into physical AI, including robotics and industrial automation. The company expects Home and Industrial IoT to become a key beneficiary of physical AI beyond 2026, even though that segment declined in the first quarter due to shipment timing and inventory normalization. Its partnership with Inova Semiconductors for a robotics control reference platform supports this longer-term strategy.
At 29% non-IFRS gross margin, GlobalFoundries is close to a key profitability milestone. If silicon photonics continues to scale, automotive remains resilient and Technology Services grows as expected, 30% may not be the ceiling. It may be the beginning of a more profitable phase for the company.
Can GFS Outpace Silicon Photonics Rivals Like TSM & UMC?
GlobalFoundries is not alone in targeting the fast-growing silicon photonics market. Among its closest competitors is Taiwan Semiconductor Manufacturing Company Limited TSM, which is advancing co-packaged optics through its COUPE platform. Leveraging its leadership in advanced process technologies and packaging, TSM is well-positioned to serve hyperscalers and AI chip designers seeking higher-bandwidth interconnect solutions. However, GlobalFoundries differentiates itself with a specialized optical networking portfolio that combines silicon photonics, silicon germanium, packaging, testing and manufacturing services.
United Microelectronics Corporation UMC is also expanding its presence in silicon photonics. The company recently announced a strategic partnership to develop thin-film lithium niobate photonics for AI infrastructure and plans to launch its first silicon photonics process design kit in 2027. UMC is also evaluating hybrid bonding, TSV and chiplet integration to support future co-packaged optics applications, underscoring the industry's growing focus on AI networking technologies.
GFS’ Stock Price Performance & Valuation Trend
Shares of GlobalFoundries have surged 133.7% in the past six months, outperforming the Zacks Electronics - Semiconductors industry’s 48.4% growth.
GFS 6-Month Price Performance
Image Source: Zacks Investment Research
GFS stock is currently trading at a premium to its industry peers, with a forward 12-month price-to-earnings (P/E) ratio of 47.61, as shown in the chart below.
P/E (F12M)
Image Source: Zacks Investment Research
Earnings Estimate Revision of GFS
GFS’ earnings estimates for 2026 and 2027 have trended upward in the past 60 days to $1.89 and $2.62 per share, respectively. The revised estimates for 2026 and 2027 imply year-over-year growth of 9.9% and 38.6%, respectively.
Image Source: Zacks Investment Research
GFS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>GlobalFoundries Inc. (GFS) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
United Microelectronics Corporation (UMC) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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