Episode Details

GLOBALFOUNDRIES Inc. (GFS) Q2 2026 — Non-IFRS EPS $0.46 vs a consensus near $0.43, on revenue of $1,786M, +6%. Both revenue and gross margin beat the high end of guidance. But reported IFRS EPS was $0.30, DOWN 27%, and adjusted free cash flow was -$3M vs +$277M. The last close was $52.02, +4.0% - the session BEFORE the print. A foundry grows two ways: more wafers, or a higher price per wafer. GF shipped 8% more wafers and grew revenue only 6% - so the implied price per wafer FELL 1.6%. The beat was volume, not price, and volume-driven margin is the fragile kind. THE CALL: SELL (3/5, A REAL BEAT, ON A NUMBER THAT IS NOT THE CASH) — base-case value ~$40.0 vs ~$52.02 today. KEY METRICS: - CALL: SELL 3/5, fair value ~$40 vs the $52.02 close (-23.1%). Base DCF: 2026 revenue $7,255M compounding at 5.5%, TRUE operating margin (share-based pay expensed) reaching 18%, capex normalising 23%->12% of revenue, at 10.0% with 2.5% terminal = $17.47B EV; +$2.18B net cash = $19.65B equity; /556M shares = $35. Cross-check 22x our 2027 non-IFRS EPS of $2.15 = $47. Weighted 60/40 = ~$40. Bear $18, bull $54. Street: Buy, $78.25 avg (19 analysts, 11/7/1), high $125, low $50 - implying +50%. We DIFFER. - THE BEAT IS REAL, BUT IT IS NON-IFRS. Non-IFRS diluted EPS $0.46 vs consensus near $0.43 - both adjusted, so the bases match; a genuine ~7% beat. Revenue $1,786M vs $1,688M (+6% YoY, +9% QoQ vs $1,634M) and IFRS gross margin 28.3% vs 24.2% (+410bp) BOTH beat the high end of guidance. But reported IFRS EPS was $0.30 vs $0.41, DOWN 27%. The IFRS-to-non-IFRS gap widened from $0.01 a year ago to $0.16 - sixteen-fold. Share-based comp is $0.15 of it: $86M vs $54M, +59%, 4.8% of revenue vs 3.2%. - VOLUME, NOT PRICE - THE CALCULATION NOBODY RUNS. Wafer shipments 625k 300mm-equivalent vs 581k, +8%, while revenue rose only 6%. Revenue grew SLOWER than volume, so implied revenue per wafer fell from ~$2,905 to ~$2,858, -1.6% YoY (+1.3% QoQ). A foundry beat usually comes from mix or pricing; this one came from pushing 8% more wafers through the same fabs - and volume-driven margin reverses with the same violence it arrived. - THE MARGIN CAME FROM ABSORPTION. Cost of revenue $1,281M vs $1,280M - FLAT - while shipping 44k more wafers. Cost per wafer $2,050 vs $2,203, -7.0%. Gross profit per wafer $808 vs $702, +15.1%. Revenue rose $98M, gross profit rose $97M: a 99% incremental gross margin. Two deductions: depreciation FELL $28M ($307M vs $335M), ~29% of the gain, an ageing asset base not a better factory; and sequentially the incremental margin is 36%, not 99%. Operating profit still FELL to $174M from $196M as opex went $212M->$331M, +56% (SG&A doubled, $78M->$157M). - FREE CASH FLOW WENT TO ZERO IN THE QUARTER THEY STARTED A DIVIDEND. Operating cash flow $405M vs $431M, but capex $411M vs $159M (+158%; 23.0% of revenue vs 9.4%) - so non-IFRS adjusted free cash flow was -$3M, vs +$277M a year ago and +$233M last quarter. Adjusted EBITDA $587M vs $585M: FLAT, margin -180bp. GF still paid its first-ever dividend ($0.12, ~$267M/yr) and spent $440M on acquisitions (Synopsys ARC, Photeon IVR); $2.18B net cash carries it. Mubadala sold 22M shares at $86.30-$86.80 on May 27, the day after the $89.96 high, and still owns ~73%. What to watch: Changes our mind UP: two consecutive quarters where revenue grows FASTER than wafer shipments (pricing has turned), or silicon photonics credibly tracking the $1B exit-2028 run-rate. Confirms the bear: a second straight quarter of negative adjusted free cash flow, or gross margin missing the 29.5% Q3 guide. We'd buy at $34-$42. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.