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Silicon carbide chip maker Wolfspeed, Inc. (WOLF), once a serious underperformer lagging behind its semiconductor peers and the broader market, has suddenly caught fire. While several high-profile chip stocks surged on the back of artificial intelligence (AI) advancements over the past year, Wolfspeed has faced a starkly different fate. With shares plunging deep into the red over the past year and YTD, the chip maker has struggled under the weight of financial setbacks and costly operational challenges, leaving investors wary in a market that’s otherwise buzzing with opportunity - and attracting the attention of activist investors, as well.
Yet, in a stunning turn of events, Wolfspeed's shares have exploded in the past month, up 89%, driven by a flurry of positive developments that have reignited investor enthusiasm toward the stock. A key catalyst for WOLF stock is the announcement of a whopping $750 million funding boost from the U.S. CHIPS Act, which aims to support the company’s expansion plans in North Carolina and New York.
Plus, this substantial injection of capital was further complemented by matching private investments from prominent firms, including Apollo and Fidelity, instilling confidence in Wolfspeed’s long-term growth trajectory.
While these recent developments have breathed new life into Wolfspeed, would it be wise for investors to scoop up the shares of this underperforming chip stock now? Let’s take a closer look to find out.
About Wolfspeed Stock
Founded in 1987, Durham-based Wolfspeed, Inc. (WOLF) - formerly known as Cree - is a leader in the global shift toward silicon carbide (SiC) technology, providing innovative solutions that enhance energy efficiency and sustainability. SiC is reshaping the semiconductor landscape, driving progress in AI, MEMS, sensors, and automotive sectors with its superior performance over traditional silicon.
With its impressive lineup of advanced silicon carbide materials and power devices, Wolfspeed is well-positioned to meet the growing demand for applications like electric vehicles (EV), fast charging, and renewable energy storage.
Valued at a market cap of approximately $1.93 billion, shares of this silicon carbide chip maker have significantly lagged the healthy returns of the broader S&P 500 Index ($SPX), with WOLF down 50.5% over the past year and 64.6% on a YTD basis.
However, the tide has turned dramatically in the last month, as WOLF stock has surged nearly 90% over this time frame. Notably, the shares still trade at a steep 67% discount to their 52-week highs, set last December.
As a result of its long-term underperformance, WOLF is relatively cheap. WOLF trades at just 2.12 times forward sales, well below its five-year average of 9.87x and the wider tech sector median of 3.04x.
Wolfspeed Misses Q4 Earnings Projections
After the company revealed its fiscal Q4 earnings results on Aug. 21, which fell short of Wall Street’s expectations, shares of Wolfspeed took a nosedive, plunging more than 5% the next trading session.
The company generated revenue of $200.7 million, almost flat year-over-year, and narrowly falling short of consensus expectations. On an adjusted basis, WOLF’s loss per share of $0.89 widened from the year-ago quarter’s $0.36, and missed Wall Street’s forecast for a loss per share of $0.88.
Adding to the disappointment, Wolfspeed's gross margin suffered a staggering decline, plummeting to a mere 1% from a robust 29% in the same quarter last year.
In discussing the Q4 performance, CEO Gregg Lowe outlined the company's dual priorities of optimizing its capital structure and enhancing performance at its cutting-edge 200-millimeter fab.
In a bid to strengthen the company’s financial footing, Lowe also announced strategic moves to slash capital expenditures by around $200 million in fiscal 2025, alongside a comprehensive review of operational costs across the board. The long-term capital expenditure strategy is projected to unlock over $1 billion in cash refunds from IRS tax credits, with an impressive $640 million already secured on the balance sheet.
Looking forward to fiscal 2025 Q1, management is setting its sights on revenue from continuing operations to range between $185 million and $215 million. In terms of non-GAAP net loss from continuing operations, Wolfspeed guided for a range between $138 million and $114 million, equating to a loss of $1.09 to $0.90 per share.
What’s Driving Wolfspeed’s Remarkable Comeback?
After the company’s less-than-impressive Q4 earnings report, the rally kicked off on Oct. 15, when Wolfspeed secured $750 million in direct funding from the U.S. Department of Commerce through the CHIPS Act, aimed at expanding its SiC production plants in North Carolina and New York.
This was a game-changing announcement for Wolfspeed, which has been investing heavily in 200mm SiC wafer technology. While difficult and expensive to produce, these wafers are expected to lower costs over time, and are crucial to the growing EV market as they improve EV efficiency and range. The news sent investors into a frenzy, triggering a remarkable 21.3% surge in Wolfspeed's shares on the very same day.
Adding fuel to the rally, Wolfspeed also secured an additional $750 million in private financing from high-profile investors like Apollo, The Baupost Group, Fidelity, and Capital Group. This major vote of confidence from institutional investors helped to calm fears over the company’s financial health, as Wolfspeed had been burning through cash while building out its SiC manufacturing capabilities. The influx of funds provides the capital needed to continue scaling its operations and meet the anticipated demand for SiC chips.
The momentum didn’t stop there. On Oct. 16, shares of Wolfspeed surged another 15.2% after the company strengthened its leadership team with the nomination of Cloudflare (NET) CFO Thomas Seifert and former investment banker Woody Young to its board of directors. These appointments earned the praise of Scott Ostfeld, managing partner at Jana Partners - the activist investor that built a stake in Wolfspeed earlier this year.
What Do Analysts Expect For Wolfspeed Stock?
On Oct.16, Morgan Stanley raised its price target on Wolfspeed from $10 to $15 and maintained an “Equal-Weight” rating on the stock. Additionally, on the same day, Mizuho Securities raised its price target from $8 to $9.50, citing the company's recent funding “lifeline” from the CHIPS Act and private equity firms.
However, Mizuho analyst Vijay Rakesh also acknowledged that while the funding alleviates some concerns regarding Wolfspeed’s hefty $5 billion net debt, the company still faces significant challenges. These include a projected 10% to 20% drop in silicon carbide pricing, increased competition from Chinese suppliers, and a slowdown in EV sales. Given those concerns, Rakesh maintained WOLF at an “Underperform” rating.
Overall, Wall Street is cautious on WOLF stock, with a consensus “Hold” rating. Of the 15 analysts covering the stock, four advise a “Strong Buy,” nine suggest a “Hold,” one says it's a “Moderate Buy,” and one analyst advocates a “Strong Sell.”
The average analyst price target of $17.96 suggests an expected potential upside of around 15.8% from current levels. Plus, the Street-high target of $28 indicates that WOLF stock could rally as much as 80% from here.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
