GlobalFoundries targets 40% margins as silicon photonics demand surges

GlobalFoundries sees a path to 40% gross margins by 2028 as silicon photonics and data center demand reshape its revenue mix.

GlobalFoundries Inc. Chief Financial Officer Sam Franklin said the chipmaker can reach 40% gross margins by 2028 and 45% by 2030, driven by a mix shift toward data center, automotive and silicon photonics markets.

"We see a clear path to significantly higher profitability over the next several years through manufacturing productivity and better utilization of our existing footprint," Franklin said.

The margin targets represent a substantial improvement from current levels. The company is betting on growth in data center, automotive and Internet of Things end markets, along with investments in silicon photonics — optical connectivity technology that moves data at higher bandwidths than traditional copper interconnects. Management also cited technology services and manufacturing productivity as key levers to reach the 40% threshold by 2028.

The push comes as rival Tower Semiconductor Ltd. this week announced $1.3 billion in silicon photonics contracts tied to data center and AI infrastructure customers, including $290 million in prepayments. The multiyear agreements extend into 2028, with wafer commitments for 2027 and even larger volumes indicated for the following year, signaling that foundries are competing for a piece of the optical connectivity buildout.

Silicon Photonics Becomes a Foundry Battleground

Tower's contracts focus on optical connectivity solutions for high-bandwidth data workloads, with the prepayments giving the company greater visibility into future capacity utilization. The deal structure — multiyear commitments with upfront customer deposits — mirrors how foundries lock in long-term AI chip demand and provides a template for how specialty foundries can secure revenue visibility in emerging technology segments.

GlobalFoundries faces competition not only from Tower but also from Taiwan Semiconductor Manufacturing Co., which is investing in specialty platforms including silicon photonics alongside its leading-edge node roadmap. The competitive pressure means GFS must execute on its margin roadmap while defending market share in a segment where customers are placing bets years in advance. The heavy commitment to one specialty area also raises questions about customer concentration and technology shifts in optical interconnects, especially as larger rivals scale their own silicon photonics capacity.

Investor Impact

GlobalFoundries shares are rated Hold with a 12-month price target of $80, according to consensus estimates. The margin targets, if achieved, would mark a structural shift for a company that has historically traded at a discount to TSMC on profitability. The silicon photonics opportunity adds a growth vector beyond the company's core RF and automotive businesses, though execution risk remains high given the multiyear timeline. For investors, the key question is whether GFS can capture enough silicon photonics market share to offset the capital spending required to build out specialty capacity, particularly as Tower's $1.3 billion in prepaid contracts suggest customers are already committing significant capital to rival foundries.

This article is for informational purposes only and does not constitute investment advice.