We recently published a list of the 8 Best Long Term Tech Stocks To Invest In Now. In this article, we are going to take a look at where GlobalFoundries Inc. (NASDAQ:GFS) stands against the other best long term tech stocks to invest in.
The technology sector came to the market’s rescue in 2023 after the disastrous macroeconomic conditions of 2022. Investments in advanced technologies like generative AI continue to show strong potential for future business growth.
According to CNBC’s Q3 CFO Council survey, 48% of the CFOs said that the tech industry’s growth will outperform all other sectors over the next six months. Moreover, in a September 23 interview with CNBC, Investment Management Partner at Callan Family Office, RaeAnn Mitrione highlighted that the tech sector has been a major beneficiary of the recent Fed rate cut. Lower interest rates are favorable for tech companies, which often thrive in such environments.
The ongoing AI theme has also been a key driver of tech’s strong performance. Additionally, she mentioned that mega-cap tech stocks were previously seen as a safe haven during economic uncertainty, but as the rate environment shifts, the focus may broaden to include smaller, more economically sensitive sectors. Nonetheless, tech’s strong momentum, fueled by AI, is likely to persist for some time.
Optimism in Global Tech Spending for 2024
According to Deloitte’s 2024 technology industry outlook, global tech spending slowed due to high interest rates, economic concerns, and geopolitical issues in 2023. However, optimism is growing for 2024, with projected global IT spending growth of 5.7% to 8%. Some of the growth areas include software, IT services, and AI investments, with AI spending potentially reaching $200 billion by 2025. Cloud computing and cybersecurity are also expected to see strong demand.
The report states that Gen AI is gaining traction but it is expected to grow modestly in 2024, yet more strongly in 2025, with its integration into software and business processes driving productivity and efficiency. AI hardware demand is set to exceed $50 billion next year, while companies continue exploring AI monetization strategies.
Harnessing AI for Greater Energy Efficiency
Additionally, the growing influence of big tech companies and the increasing reliance on AI have led to a significant rise in energy demand. We discussed this in our article about the 13 Best Big Tech Stocks To Buy Now. Here is an excerpt from the article:
“A recent notable trend that people have begun to see because of the rise of big tech companies and the growing use of AI is a greater demand for power. Many major tech companies are beginning to require more energy, with the AWS-owner going as far as buying a nuclear-powered data center for $650 million recently.
The primary driving force for this rising demand is the need to develop AI. Many energy-conscious investors may see this new trend as a red flag for big tech. However, Jensen Huang has noted that while AI takes a ton of energy to train, once developed and trained, it will also help save energy. He particularly noted that AI is going to become so advanced through this development that it will eventually end up offering solutions that can change the way we use energy, making our operations endlessly more energy efficient.”
While concerns about the electricity needed to power AI are justified, according to industry pioneers like Nvidia CEO Jensen Huang, the technology itself will help solve that problem.
Our Methodology
For this article, we used the Finviz stock screener to identify 27 tech stocks with market caps of above $10 billion, Buy or Buy-equivalent ratings from analysts, and over 20% average price target upside. We narrowed our list to 8 stocks with the highest average analyst price target upside as of September 26. The best long term tech stocks are listed in ascending order of their average analyst price target upside.
We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is GlobalFoundries Inc. (NASDAQ:GFS) the Best Long Term Tech Stock To Invest In Now?
GlobalFoundries Inc. (NASDAQ:GFS)
Average Analyst Price Target Upside: 34.94%
Number of Hedge Fund Holders: 21
GlobalFoundries Inc. (NASDAQ:GFS) is a semiconductor foundry that provides a wide range of wafer fabrication services and technologies across the globe. The company produces various semiconductor devices such as microprocessors, mobile application processors, network processors, and power management units.
It has a presence across three continents and 14 facilities, serves over 200 global customers, and collaborates with more than 100 partners, which brings it forward as a key player in the semiconductor industry.
It ranks 8th on our list of the best long term tech stocks to invest in. As per the coverage of 9 analysts, the stock has a consensus Buy rating. As of September 26, the average price target of $55.00 has a 34.94% upside from the present levels.
A significant development for GlobalFoundries (NASDAQ:GFS) occurred in July when the company announced the acquisition of Tagore Technology’s proprietary Power Gallium Nitride (GaN) intellectual property portfolio.
The technology is designed to enhance efficiency and performance in high-power applications, especially in sectors like automotive, the Internet of Things (IoT), and AI data centers. The acquisition not only expands the company’s power IP portfolio but also aligns with the company’s strategy to meet the growing demand for GaN power devices.
In February, the company secured $1.5 billion in direct funding through the U.S. CHIPS and Science Act. The investment aims to facilitate the high-volume manufacturing of critical technologies, including GaN, allowing the company to produce essential chips domestically.
On August 6, Evercore ISI analyst Mark Lipacis lowered the price target on GlobalFoundries (NASDAQ:GFS) to $71 from $77 and kept an Outperform rating. Following the latest quarterly results, Evercore noted that the company exceeded expectations with Q2 revenues and Q3 outlook surpassing Street forecasts by 1%.
The firm highlighted that the company expects consistent quarter-over-quarter growth through 2024, driven by substantial year-over-year increases in the automotive sector and a gradual recovery across other markets.
As the company has exited a capital expenditure cycle, there is an optimistic outlook for free cash flow per share, projected to be 40% to 45% above earnings per share for 2024 and 2025. It positions the company for healthy cash generation and enhances its ability to invest in further growth opportunities.
Overall, GFS ranks 8th on our list of the best long term tech stocks to invest in. While we acknowledge the potential of GFS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
