Synthesis of device-quality GeSn materials with higher Sn compositions is hindered by various factors, such as Sn segregation, clustering, and short-range ordering effects. In the present work, the impact of the clustering of Sn atoms in a GeSn semiconductor alloy was studied by density functional theory using SG15 pseudopotentials in a Synopsys QuantumATK tool, where the thermodynamic stability, effective band structure, indirect and direct bandgaps, and density of states (DOS) were computed to highlight the difference between a cluster-free random GeSn alloy and a GeSn alloy with Sn–Sn clusters. A 54-atom bulk Ge1–xSnx (x = 3.71%–27.77%) supercell was constructed with cluster-free and a first nearest neighbor Sn–Sn clustered GeSn alloy at each composition for this work. Computation using the generalized gradient approximation exchange-correlation functional showed that the thermodynamic stability of GeSn was reduced due to the clustering of Sn, which increased the formation energy of the GeSn alloys by increasing the Hartree potential energy and exchange-correlation energy. Moreover, with the effective band structure of the GeSn material at a Sn composition of ∼22%, both direct (Eg,Γ) and indirect (Eg,L) bandgaps decreased by a large margin of 40.76 and 120.17 meV, respectively, due to Sn–Sn clustering. On the other hand, Eg,Γ and Eg,L decrease is limited to 0.5 and 12.8 meV, respectively, for Sn composition of ∼5.6%. Similar impacts were observed on DOS, in an independent computation without deducing from the electronic band structure, where the width of the forbidden band reduces due to the clustering of Sn atoms in GeSn. Moreover, using the energy bandgaps of GeSn computed with the assumption of it being a random alloy having well-dispersed Sn atoms needs revision by incorporating clustering to align with the experimentally determined bandgap. This necessitates incorporating the effect of Sn atoms clustered together at varying distributions based on experimental characterization techniques such as atom probe tomography or extended x-ray absorption fine structure to substantiate the energy bandgap of the GeSn alloy at a particular composition with precision. Hence, considering the effect of Sn clusters during material characterization, beginning with the accurate energy bandgap characterization of GeSn would help in mitigating the effect of process variations on the performance characteristics of GeSn-based group IV electronic and photonic devices such as varying leakage currents in transistors and photodiodes as well as the deviation from the targeted wavelength of operation in lasers and photodetectors.