ON - Wolfspeed: Capitalize On Strong EV Growth Compelling Valuation

2024-02-13 11:12:12 ET

Summary

• The SiC market is expected to grow from $2B to $14B by 2030, driven substantially by EV volume growth.
• Wolfspeed is the only pure-play company in the SiC market, positioned for strong growth. It has a 2027 revenue target for $4B revenue, more than its current market cap.
• Wolfspeed's Mohawk Valley fab is ramping up, and it has achieved significant design-ins and design wins, proving the long-term revenue potential.
• The P/S valuation likely has little downside (if it reaches long-term profitability targets), making the stock price potentially correlated with revenue growth.

Investment Thesis

The SiC market is one way for investors to capitalize on the growth of EVs, which remains ongoing. Wolfspeed, Inc. ( WOLF ) is the only pure-play company in that regard. The main thesis is strong growth, which should eventually lead to increased margins and profitability. That should allow the company to roughly maintain (or even expand, in the best case) its P/S ratio, given its modest current valuation, which is, for example, a bit lower than ON Semiconductor Corporation ( ON )....

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