The compiler sees that foo can only be assigned in one place (that isn't called locally, but could called from other object files linked into the program) and its address never escapes. Since dereferencing a null pointer is UB, it can legally assume that `*foo` is always 42 and optimizes out the variable entirely.
Compilers can do whatever they want when they see UB, and accessing an unassigned and unassiganble (file-local) variable is UB, therefore the compiler can just decide that *foo is in fact always 42, or never 42, or sometimes 42, and all would be just as valid options for the compiler.
(I know I'm just restating the parent comment, but I had to think it through several times before understanding it myself, even after reading that.)
The way they work things out is to assume no UB happens (because otherwise your program is invalid and you would not request compiling an invalid program would you) then work from there.
That's not exactly correct. It's not that the compiler sees that there's UB and decides to do something arbitrary: it's that it sees that there's exactly one way for UB to not be triggered and so it's assuming that that's happening.