Shares of silicon carbide producer Wolfspeed(NYSE: WOLF) fell hard this week, down 16.7% through 3:13 p.m. EDT Thursday, according to data from S&P Global Market Intelligence.
Wolfspeed has had a tough year, down 80.3% in 2024. So, this week's slide was pretty much a continuation of the negative trends affecting it all year. On top of that, a Wall Street analyst downgraded shares Thursday, adding insult to injury.
Mizuho grows even more pessimistic
Wolfspeed has been spending a tremendous amount of money in order to become a vertically integrated producer of silicon carbide (SiC) chips. Of note, silicon carbide is somewhat difficult to work with and produce in volumes, but when it works, it conducts higher voltages and is more efficient while operating at lower temperatures than traditional silicon. As such, SiC has been touted as the future for electric vehicles (EVs) and electric infrastructure.
But while Wolfspeed is spending a lot of money, it's not making a lot of money. Last quarter, Wolfspeed's revenue was only flat, with an operating loss of $145.9 million. Moreover, management only guided for flat revenue again and even larger losses in the current quarter. Meanwhile, the company has about $6 billion in debt against about $2 billion in cash. While its cash balance doesn't put Wolfspeed in any near-term danger, the continuing losses could force it to dial back its grand vision.
On Thursday, Mizuho sell-side analyst Vijay Rakesh downgraded shares and lowered his price target from $17 to $8. As justification, Rakesh sees EV sales continuing to struggle as they have all year. Tesla's (NASDAQ: TSLA) disappointing deliveries reported on Wednesday likely didn't help on that front. Second, Rakesh actually believes there may be some oversupply of SiC chips in China, which is a huge, clean-energy market. Third, Rakesh believes the industrial sector, another key secondary market for SiC, is also slowing.
Wolfspeed is too risky even at these levels
While Wolfspeed has touted its SiC capabilities and design-in wins, the company has been slow to show actual results from all its spending. That's even as other competitors have been growing their SiC revenues and profits already.
While the stock may seem like a bargain at these levels, it's probably best for investors to wait for an actual pickup in revenue growth and at least narrowing losses before diving in.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Wolfspeed. The Motley Fool has a disclosure policy.
