WOLF - Wolfspeed: Speeding Ahead Now

2023-11-01 15:56:45 ET

Summary

• Wolfspeed, Inc. continues to sign massive design-ins and design wins, despite negative news in the auto semiconductor sector.
• The company has $20.2 billion worth of design-ins, while generating only ~$200 million in quarterly sales.
• The Mohawk Valley fab is making progress and is expected to reach $100 million in quarterly revenue at 20% capacity.
• The stock is cheap with a market cap far below annual design-ins.

Despite some negative news in the auto semiconductor sector, Wolfspeed, Inc. ( WOLF ) soared following fiscal Q1 2024 results . The company continues to sign massive design-ins and design-wins while the stock has dipped to the lows. My investment thesis remains ultra Bullish on the stock, though the tough electric vehicle ("EV") market should make Wolfspeed volatile here.

Focus On Future

As our prior research highlighted, investors should focus on the future of silicon carbide in EVs and renewable energy. Wolfspeed isn't an investment for current results.

During FQ1'24, Wolfspeed signed $2.2 billion in design-ins and $1.0 billion worth of design-wins. The company signed $8.3 billion worth of design-ins during FY23 and has now amazed $10.5 billion worth of design-ins in the last 4 quarters alone.

Wolfspeed now has $20.2 billion worth of design-ins while the company is only generating ~$200 million in quarterly sales. For FQ1'24, design-ins were 11x the actual revenues.

The Mohawk Valley fab continues making progress with the slow production ramp. Sales hit $4 million during the September quarter and will top $10 million in the December quarter, with a goal of only reaching 20% capacity by the 2H'24.

The 20% utilization target is key because this is when the Mohawk Valley fab reaches $100 million in quarterly revenue. Wolfspeed targets the December quarter for revenues to reach that levels ~2 quarters after hitting the capacity target in the June quarter.

The company targets reaching 15% utilization in the next quarter or so making the market very confident Wolfspeed will easily reach the goal by FQ4 now, or either soar past the target. On the FQ4'23 earnings call , the CEO made this following comment about the demand situation (emphasis added):

Well, obviously, we would like our Mohawk Valley fab to remarket faster and so would our customers. And as such, I've been on pretty much weekly calls with CEOs and executives from major OEMs and Tier 1s. And basically, their consistent message back to me was we need more and need it soon . So the demand that we're seeing both near term and long term is very, very solid.

The silicon carbide market is now forecasted to have a value of $6 billion and a market target size of $20 billion by 2030, which is only 6 years away now.

Tough Slog For Now

Wolfspeed reported a quarter where revenues were only up 4.2% to $197.4 million. In addition, the company is losing money and has substantial capex ahead to finish the Mohawk Valley and the new JP Siler City facility opening in 2025.

The semiconductor company guided to December quarter sales of mostly flat sequentially at $192 to $222 million. The upside potential comes from the revenue growth at Mohawk Valley going from $4 to at least $10 million. Ultimately, the new fab targets eventually reaching $500 million in quarterly sales when the facility reaches full capacity in the future.

Investors need to realize Wolfspeed has design-ins for $20 billion while the new facility will only reach $2 billion worth of annual revenues in a sign of the massive long-term demand. Analysts currently forecast the company reaching nearly $2 billion in sales in FY26 and surging to $2.6 billion in FY27.

The semiconductor company gave investors far more confidence this will actually occur with ramp up of production at the Mohawk Valley fab and signs that demand for their silicon carbide materials and devices remain strong.

The stock has a market cap of only $4.2 billion while the company collected $2.2 billion in backlog during the quarter. Wolfspeed previously traded above $120 and the stock market will likely again start valuing the stock based on the order book and not on the current revenue stream.

Takeaway

The key investor takeaway is that investors should use weakness to load up on Wolfspeed, Inc. stock. The shares initially soared over 20% on the positive quarter, but the cloudy demand outlook in the EV sector is likely to cause Wolfspeed to trade volatile for the rest of the year, and investors should pick up WOLF stock on weakness.

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