Why Wolfspeed went under this week

Silicon carbide producer shares Wolfspeed (WOLF -7.10%) fell sharply 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 rough year, down 80.3% in 2024. So this week’s slide was pretty much a continuation of the negative trends affecting it all year. In addition, a Wall Street analyst downgraded the stock on Thursday, adding insult to injury.

Mizuho becomes even more pessimistic

Wolfspeed spent a huge amount of money to become a vertically integrated manufacturer 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 of electric vehicles (EVs) and electrical infrastructure.

But while Wolfspeed spends a lot of money, it doesn’t make a lot of money. Last quarter, Wolfspeed’s revenue was just flat, with an operating loss of $145.9 million. Moreover, management only guided for fixed income again and even higher losses in the current quarter. Meanwhile, the company has about $6 billion in debt versus about $2 billion in cash. While its cash balance doesn’t put Wolfspeed in any near-term danger, continued losses could force it to scale back its big vision.

Thursday, Mizuho sell-side analyst Vijay Rakesh downgraded the stock and cut his price target from $17 to $8. As justification, Rakesh sees EV sales continuing to struggle as they have all year. adzehis (TSLA -3.85%) the disappointing deliveries reported on Wednesday probably didn’t help in that regard. Second, Rakesh actually believes there may be an oversupply of SiC chips in China, which is a huge clean energy market. Third, Rakesh believes that the industrial sector, another key secondary market for SiC, is also slowing down.

Wolfspeed is too risky even at these levels

While Wolfspeed has touted its SiC capabilities and design gains, the company has been slow to show real results from all its spending. This is even though other competitors have already increased their SiC revenues and profits.

While the stock may look like a bargain at these levels, it’s probably best for investors to wait for a real pick-up in earnings growth and at least cut losses before plunging.