Is Wolfspeed Stock a Buy?

Core Viewpoint - Wolfspeed, a silicon carbide chipmaker, has experienced a significant decline in stock value and growth, raising questions about its future prospects in the semiconductor market [1][3][14] Company Performance - Wolfspeed's stock peaked at $141.87 in November 2021, reflecting a nearly 470$5 due to stalled growth and declining margins [1][3] - In fiscal 2022, revenue increased by 42% with an adjusted gross margin of 36%, largely driven by the electric vehicle (EV) market [3][4] - However, revenue growth slowed to 24% in fiscal 2023 and further declined to just 6% in fiscal 2024, with adjusted gross margins dropping to 13% [4][6] Market Dynamics - The slowdown in sales growth is attributed to a cooling EV market and a shift in focus by companies towards AI-oriented data center chips [6] - Tesla, a key customer, indicated that its upcoming powertrains would require 75% fewer silicon carbide chips, further impacting Wolfspeed's outlook [6] - Analysts predict a revenue decline of 0% to 15% year-over-year for the third quarter of fiscal 2025, with an overall expected decline of 6% for the year [7] Operational Challenges - To address slowing growth, Wolfspeed has expanded its manufacturing plants in New York and North Carolina, aiming to reduce die costs by over 50%, but this will take years to materialize [8] - The company has laid off 20% of its workforce and secured $750 million in funding from the U.S. Department of Commerce, yet it remains unprofitable with total liabilities of$6.66 billion and a high debt-to-equity ratio of 17.9 [9] Future Outlook - Despite the current challenges, analysts remain optimistic about the silicon carbide market, projecting a compound annual growth rate (CAGR) of 9.7% from 2024 to 2032 [11] - From fiscal 2025 to fiscal 2027, Wolfspeed's revenue is expected to grow at a CAGR of 44%, increasing from $757 million to$1.57 billion as the SiC market recovers [12] - The U.S. ban on purchasing SiC chips from Chinese manufacturers may also provide a competitive advantage for Wolfspeed [12] Investment Considerations - With an enterprise value of $6.2 billion, Wolfspeed's valuation at 6 times next year's sales may not be attractive, especially given the uncertainty surrounding its recovery [13] - The company is likely to face ongoing challenges in the near term, suggesting that investors may want to consider more stable semiconductor stocks for the time being [14]