Wolfspeed (WOLF) is well-positioned to meet the emerging semiconductor demand due to the market growth of Electric Vehicles (EVs), the Internet of Things (IoT), and 5G, with its silicon carbide (SiC) and gallium nitride chips. The firm is grappling with expanding losses, driving the share price down 71% year-to-date. However, despite Wolfspeed’s current lack of profitability, the company anticipates a brighter future in the coming years, which could catalyze shares to significantly higher levels.
This makes it an opportunity investors may want to track and be ready to engage in if price momentum turns positive or fundamentals show marked improvement.
Wolfspeed Is Cutting Costs and Expanding Its Pipeline
Wolfspeed provides technologies for sustainable and efficient energy consumption. Its product portfolio includes silicon carbide materials and power devices designed for a range of applications, such as electric vehicles, fast charging, and renewable energy storage.
WOLF’s management has recently identified areas to minimize cost and improve profitability across all business aspects, targeting $200 million of CapEx reductions by fiscal 2025. For example, the company is accelerating its device fabrication shift to Mohawk Valley to leverage the improved profitability from its 200-millimeter device fab, outperforming its Durham 150-millimeter fab in efficiency and die cost advantages.
As 90% of new EVs are projected to use 800-volt systems by 2027 to 2030, the shift toward more efficient architectures is a significant growth opportunity for the silicon carbide sector. The transition of OEMs to silicon carbide devices in next-generation EVs with higher power requirements bodes well for Wolfspeed, as evidenced by the company’s $21 billion worth of EV design-ins.
Wolfspeed’s Recent Financial Results & Outlook
The company recently published its fourth-quarter results for 2024. Revenue was $200.70 million, slightly missing analysts’ expectations of $201.19 million while showing a decrease from the previous year’s Q4 revenue of $203 million. Contributions from the Mohawk Valley Fab were notable, adding roughly $41 million in revenue. However, the non-GAAP gross margin experienced a significant drop from 31% to 5%, while earnings per share (EPS) of -$0.89 fell short of the consensus estimates of -$0.85.
Following fourth-quarter results, WOLF’s management has issued guidance for the first quarter of fiscal 2025. They expect revenue from ongoing operations to fall between $185 million and $215 million and anticipate a non-GAAP net loss between $138 million and $114 million, or $1.09 to $0.90 per share.
What Is the Price Target for WOLF Stock?
The stock has been on an extended volatile slide, shedding over 85% in the past three years. It trades at the low end of its 52-week price range of $11.53 – $49.32 and demonstrates negative price momentum, trading below the 20-day (24.44) and 50-day (25.32) moving averages. The stock trades at a discount to industry peers based on a P/S ratio of 1.9x, sitting well below the Semiconductor industry average of 11.28x.
Analysts following the company have taken a cautious stance on WOLF stock. For example, Deutsche Bank analyst Robert Sanders recently lowered the price target on the shares from $17 to $14 while maintaining a Hold rating, noting the closing of the Durham 150mm fab and the company moderating its spending to reduce the probability of a cash crunch.
WOLF is rated a Hold based on the recommendations and price targets issued by 15 analysts. The average price target for WOLF stock is $20.36, representing a potential 66.20% upside from current levels.
Wolfspeed in Summary
Despite current profitability setbacks, Wolfspeed’s recent efforts to reduce expenses and transition to more efficient production facilities point to potential future margin improvement. Further, Wolfspeed stands to capitalize on an anticipated market shift towards SiC systems in EVs, boasting an impressive EV design-ins portfolio valued at $21 billion. There may be short-term challenges, reflected in its Q4 fiscal results and downward Q1 fiscal guidance, causing the share price to suffer.
However, Wolfspeed’s forward-looking strategy and presence in booming sectors make it an intriguing investment opportunity to monitor closely. Any positive price momentum or fundamental shift could bode well for potential investors.
