Wolfspeed (WOLF), a leader in silicon carbide (SiC) technology, has recently secured a $2.5 billion investment to boost its expansion and enhance domestic silicon carbide production. With a hefty influx of funds from the U.S. Department of Commerce, investment groups, and projected cash tax refunds, Wolfspeed is poised to expand its market share in the growing semiconductor industry as a primary silicon carbide producer.
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Despite underwhelming financial performance in Q4 2024, the company’s focus on SiC and gallium nitride technology, in association with its partnership with EPC Power, makes it a major contender with solid upside potential. The stock has jumped 43% on the news. Still, it trades at a significant discount to industry peers, making it a potentially attractive candidate for value-oriented investors interested in this high-tech growth sector.
Wolfspeed’s Growing War Chest
Wolfspeed is a developer and manufacturer focusing on silicon carbide and gallium nitride (GaN) technologies to a broad customer base. Wolfspeed has recently introduced a silicon carbide module to revolutionize the renewable energy, energy storage, and high-capacity fast-charging sectors.
The company also offers silicon carbide Schottky diodes, metal oxide semiconductor field effect transistors (MOSFETs), and power modules, which prove instrumental in a wide array of applications, including electric vehicles, server power supplies, solar inverters, and industrial power supplies.
Wolfspeed announced it signed a preliminary memorandum of terms with the U.S. Department of Commerce and secured financing from a consortium of investment funds, potentially raising $2.5 billion in capital. This capital is expected to support the company’s long-term growth, particularly in increasing domestic production of silicon carbide.
In addition to this capital, Wolfspeed intends to leverage a $1 billion cash tax refund from the advanced manufacturing tax credit under the CHIPS and Science Act, further boosting its financial position. The funds are anticipated to help the company complete its multi-billion-dollar capacity expansion plan in the U.S.
Wolfspeed’s Recent Financial Results
The company released its Q4 FY2024 results, with revenue for the quarter of $200.70 million, just missing analysts’ expectations of $201.19 million and a slight decrease from the previous year’s $203 million. The GAAP gross margin plummeted drastically from 29% to 1%, while the non-GAAP margin also fell from 31% to 5%. This included the impact of $24 million in underutilization costs. Earnings per share (EPS) of -$0.89 fell short of the projected analyst estimate of -$0.85.
The consolidated revenue was approximately $807 million in the broader fiscal year, an increase from the previous year’s $759 million. However, gross margins experienced a significant downshift. The GAAP gross margin decreased from 32% to 10%, and the non-GAAP gross margin from 35% to 13%. Again, these figures were impacted by a hefty $124 million underutilization cost.
What Is the Price Target for WOLF Stock?
The recent news has boosted share price and has breathed life into a stock that had been steadily declining, shedding 82% over the past three years. It trades at the lower end of its 52-week price range of $11.53 – $49.32 and shows positive price momentum as it trades above the 20-day (11.66) and 50-day (12.16) moving averages. Its P/S ratio of 2.5x sits well below the Semiconductors industry average of 11.4x, suggesting it trades a significant discount to industry peers.
Analysts following the company have taken a cautious stance on WOLF stock. For example, Morgan Stanley ($ MS) analyst Joseph Moore, a five-star analyst according to Tipranks’ ratings, recently reiterated an Equal Weight rating on the shares, though it raised the price target from $10 to $15, noting that significant recent funding should alleviate liquidity worries through 2026.
Wolfspeed is rated a Hold overall, based on 15 analysts’ recommendations. The average price target for WOLF stock is $17.18, representing a potential upside of 7.31% from current levels.
Final Thoughts on WOLF
Wolfspeed is set to expand its presence thanks to a significant capital injection. This financial uplift is expected to position the firm as a market leader in the growing silicon carbide and gallium nitride industry. This, coupled with its strategic relationship with EPC Power, paints an optimistic picture for the future. The company’s stock currently trades at a discount compared to similar players in the market. At the same time, its potential for growth and innovation makes it a potentially appealing option for discerning value-oriented investors.
