After Its Recent Rally, Should Investors Sell Wolfspeed Stock?

Core Viewpoint - Wolfspeed is undergoing a prepackaged bankruptcy process, which will significantly dilute the value for existing shareholders, leaving them with only 3% to 5% of the restructured company [4][13]. Company Overview - Wolfspeed specializes in silicon carbide technologies and is a developer and manufacturer of wide-bandgap semiconductors, focusing on silicon carbide and gallium nitride materials [6]. - The company aimed to become fully vertically integrated, leading to substantial capital expenditures, including a $5 billion facility in North Carolina and another in New York [8]. Financial Situation - Wolfspeed is expected to eliminate $4.6 billion in debt through the bankruptcy process, reducing annual interest expenses by approximately 60% [4]. - The company burned through $1.5 billion in cash during the first nine months of its current fiscal year, resulting in a gross margin of negative 17% [9]. - For fiscal year 2026, Wolfspeed anticipates generating $200 million in unlevered operating cash flow, but this figure excludes significant interest payments [11]. Market Dynamics - The recent stock rally is likely attributed to a short squeeze, as the stock has a high short interest and short sellers are covering their positions [2]. - The company has faced challenges in operational execution, particularly in meeting the demand from electric vehicle manufacturers, and has encountered aggressive pricing from Chinese competitors [7][9]. Management and Future Outlook - The appointment of Gregor van Issum as CFO is seen as a positive step for restructuring, but it does not change the unfavorable outlook for current shareholders [12][13]. - Wolfspeed's transition to 200mm wafers is expected to improve operating results, but the technological challenges associated with this transition pose risks [10].