Wolfspeed: Joining The Pack
Summary
- Wolfspeed, Inc. is down around 23% YTD. We believe the stock is a high-reward high-risk stock.
- We’re bullish on the stock as we expect the demand tailwinds for Silicon Carbide content for EVs, Wolfspeed’s specialty, to drive growth going forward.
- Our bullish thesis on Wolfspeed is highly reliant on how the company’s plans for 200mm SiC wafers pan out toward 2023.
- We believe Wolfspeed will benefit from the long-term growth trends in the SiC wafer and power device markets and recommend investors buy the pullback.
Andyworks/E+ via Getty Images
Wolfspeed, Inc. (NYSE:WOLF) is a risky stock; nevertheless, we are bullish on the company. WOLF is a major wide bandgap semiconductor focused on Silicon Carbide (SiC) wafers operating three primary markets: power, radio frequency (RF), and materials. Essentially, WOLF provides the SiC wafers necessary for power switches to enable higher power densities and switching efficiencies. We expect WOLF to benefit from the increased demand for SiC in the electric vehicle (EV) market.
We like WOLF's position within the SiC market as it rolls out its plans for 200mm SiC wafers. We expect the 200mm SiC wafers to boost WOLF's top-line growth. We believe WOLF stock is high-risk but equally high-reward, as we expect the company's growth to rely on its 200mm SiC wafers. We expect the stock price to be volatile in the near term, but believe the stock's 23% drop YTD provides a relatively attractive entry point into the company's 2023 growth.
SiC technology is a gold mine
WOLF operates in the highly lucrative and expanding SiC market, which is not without risks. In spite of macroeconomic headwinds, WOLF achieved a 54% revenue growth Y/Y, beating estimates by $1.53M. The global SiC market is quickly expanding and is estimated to grow at a CAGR of 12% between 2023-2033. We're specifically constructive on the role SiC stands to play in revolutionizing the automotive industry as EVs penetrate the power industry. We expect the EV adoption of SiC wafers to drive growth and believe WOLF will be a primary benefactor of the transition. The automotive industry is increasingly transitioning from Internal combustion engines (ICE) to EVs, and we expect the transition will cause increased demand for SiC wafers.
The following graph outlines SiC's growth outlook in the EV market.
WOLF Investor Day presentation
SiC semiconductors operate with higher voltages, temperatures, and frequencies than traditional silicon-based semiconductors. Hence, SiC is becoming a significant factor in the growth of semiconductor technology, and we expect WOLF to ride the upward trend.
200mm SiC wafers are hit or miss
We expect WOLF to benefit from the demand tailwinds in the SiC market, being the first semiconductor to build a 200mm SiC fab plant successfully. WOLF is investing heavily in expanding production in its 200mm SiC Mohawk Valley fab that opened in upstate New York. We're excited about the 200mm SiC wafer production, but believe delays in WOLF's plans could harm the company significantly. We believe a lot is riding on WOLF's execution of its 200mm SiC wafer plan. The devices WOLF manufactures in its Mohawk Valley plant are crucial to feeding the company's $20B pipeline in the global semiconductor industry.
The following graphs outline WOLF's plans for its 200mm SiC wafers.
WOLF Investor Day presentation
WOLF is working to make its revenue reliant on the Mohawk Fab production as well as future fabs it plans to open. The fab is expected to begin shipping in the second half of FY2023. We believe the stock will likely rally if WOLF sticks to its plan without delays.
Stock performance
WOLF stock is up almost 86% over the past five years. YTD, the stock is down around 23%, along with the rest of the peer group. WOLF operates in a highly competitive market which adds to the risks ahead. YTD, competition is also in the negatives, with Qorvo (QRVO) down almost -38%, Lattice Semiconductor (LSCC) -8%, Seagate (STX) -53%, Monolithic Power Systems (MPWR) -23% and Silicon Laboratories (SLAB) -31%. We don't believe WOLF's YTD decline is due to any shortcoming from the company itself; instead, we attribute it to the macroeconomic headwinds that have hit the semiconductor peer group.
The following graphs outline WOLF's five-year and YTD stock performance compared to the competition.
TechStockPros TechStockPros
Overvalued Stock
WOLF stock is highly overvalued. On a P/E basis, the stock is trading at 241.7x C2023 EPS $0.36 compared to the peer group average at 20.0x. The stock is trading at 9x on EV/C2023 Sales versus the peer group average of 4.7x. We believe the stock price will be volatile over the next few quarters until the 200mm SiC wafer plans pan out.
The following table outlines WOLF's valuation in comparison to the peer group.
TechStockPros
Word on Wall Street
Wall Street shares our bullish sentiment on the stock. Of the 20 analysts covering the stock, 14 are buy-rated, four are hold-rated, and the remaining are sell-rated. The stock is currently trading at $86. The median and mean sell-side price targets are set at $100 and $101, respectively, with a potential upside of 16-17%.
The following table outlines WOLF's sell-side ratings and price targets.
TechStockPros
What to do with the stock
We believe WOLF stock is somewhat of a hot potato. Wolfspeed, Inc. stock is expensive compared to the peer group; nevertheless, we expect the stock may yield high rewards if the company successfully ships its 200mm SiC wafers. We expect WOLF to benefit from the global adoption of SiC wafers in the EV market. We recommend investors buy Wolfspeed, Inc. stock, but with the tricky risk-reward scenario in mind.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.