Wolfspeed's stock sinks as chip maker remains a 'show-me' story after a confusing quarter

By Wallace Witkowski

Company's Mohawk Valley fab not contributing as fast as expected

Wolfspeed Inc. shares dropped Thursday after Wall Street analysts reflected on a confusing quarter from the maker of silicon-carbide chips as it struggles to ramp up contributions from a major fabrication plant.

Wolfspeed (WOLF) shares dropped as much as 21% to an intraday low of $42.01 and were last down 18% in Thursday trading. The stock was on track for its worst one-day performance since Oct. 27, when shares dropped 18.2%.

Late Wednesday, Wolfspeed reported a wider-than-expected loss and also forecast one for the current quarter. Year to date, shares are down 37%, versus a 37% gain on the PHLX Semiconductor Index SOX over the same period, a 15% gain on the S&P 500 SPX and a 28% rise on the tech-heavy Nasdaq Composite Index COMP.

TD Cowen analyst Joshua Buchalter, who has an outperform rating on the stock but lowered his price target to $60 from $72, said that while there is "nothing broken" at Wolfspeed, it was "another quarter with more questions than answers." Wolfspeed specializes in making power-switching and radio-frequency chips.

"We hoped for a clean quarter to focus on fundamentals," Buchalter noted. "We didn't get it." The analyst said results showed a limited contribution from the ramping of MVF, the company's Mohawk Valley silicon-carbide fab, and an "optically painful" hit to gross margins from accounting changes, driving "another confusing quarter."

Read: Wolfspeed's stock sinks as silicon-carbide chip company sees swelling losses

"We still believe in Wolfspeed's position in an inflecting SiC total addressable market," Buchalter said, "but execution and messaging need consistency."

Evercore ISI analyst Matthew Prisco, in a note titled "And the Wolfspeed roller coaster continues," said he was maintaining his outperform rating on the stock, "but until we start to see more positive proof points on execution the name will remain a 'show-me' story with better upside elsewhere near-term."

Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and trimmed his target price on the stock to $50 from $58, said that while the company posted slightly better results for the quarter ending in June, it siphoned those off from the one ending in September.

"Future revenue growth for Wolfspeed will now ultimately depend solely on the ramp of MVF, which only generated roughly $1 million in device revenue in [the fiscal fourth quarter], missing prior guidance for 'a few million' dollars," Rolland said. "While Wolfspeed still expects to reach 20% utilization out of MVF by the end of [fiscal 2024], they don't expect to recognize $100 million of associated revenue until two quarters later (December '24)."

Of the 22 analysts who cover Wolfspeed, 10 have buy-grade ratings, 10 have hold ratings and two have sell ratings, along with an average target price of $59.54, down from a previous $65.47 as at least six analysts cut price targets, according to FactSet data.

-Wallace Witkowski

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08-17-23 1359ET

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