On Wednesday, Wolfspeed (NYSE: NYSE:WOLF), a semiconductor company, saw its stock price target increased to $9.50 from $8.00 by Mizuho, while the firm kept its Underperform rating on the stock. The adjustment comes after Wolfspeed received significant financial support, including approximately $750 million from the CHIPS Act funding, matched by a similar amount from private equity and traditional investors. Moreover, the company is set to benefit from $1 billion in tax rebates on equipment spending.
The analyst from Mizuho noted that this approximately $2.5 billion lifeline addresses some of the concerns they previously identified with Wolfspeed, such as its high net debt to sales ratio, which stands at approximately six times, and its substantial net debt of around $5 billion. Despite the company's negative free cash flow exceeding $1.5 billion per year and slower progress in scaling up 200mm production ramps, the new funding provides a near-term buffer against cash burn issues.
However, the outlook remains cautious due to several ongoing challenges. The analyst highlighted potential headwinds including an expected decline in silicon carbide (SiC) pricing by 10-20% year-over-year by 2025, increased SiC supply and pricing pressure from China, and a potential oversupply of 150mm SiC.
Furthermore, the electric vehicle (EV) market, which is a significant consumer of SiC products, is showing signs of a slowdown, with sales projections for 2025 being significantly lower than consensus estimates.
The report also suggests that EV manufacturers may opt for a hybrid silicon/silicon carbide (Si/SiC) platform instead of a pure SiC powertrain as a cost-saving measure. The analyst emphasized that while the recent financial support mitigates immediate financial concerns for Wolfspeed, the company still faces unclear execution milestones amid rising competition in the industry.
In other recent news, Wolfspeed has secured significant funding and analyst attention. The semiconductor company has received approximately $2.5 billion in cumulative funding, including $750 million from the CHIPS Act and an additional $750 million led by investment group Apollo. This financial support is expected to contribute to Wolfspeed's cash generation and long-term profitability objectives.
Analysts from JPMorgan and Citi have maintained a Neutral rating on the company, while Canaccord Genuity and Roth/MKM have upheld a Buy rating, and Deutsche Bank holds a Hold rating.
As part of its recent developments, Wolfspeed has also announced plans to build a new Silicon Carbide wafer manufacturing facility in North Carolina and expand its existing facility in New York. These initiatives are backed by a potential $750 million grant from the CHIPS Act.
Furthermore, the company has secured an additional $750 million in financing led by an investment group that includes Apollo Global Management (NYSE:APO), the Baupost Group, Fidelity Management & Research Company, and Capital Group.
In terms of earnings and revenue, Wolfspeed's Q4 Fiscal Year 2024 results showed a slight increase in revenue, driven primarily by the electric vehicle market. The company anticipates Q1 Fiscal Year 2025 revenue between $185 million and $215 million, with a projected non-GAAP net loss between $138 million and $140 million.
Wolfspeed ended the fiscal year with a robust liquidity of $2.2 billion and expects net capital expenditures for FY 2025 to be between $1.2 billion and $1.4 billion. These recent developments align with Wolfspeed's strategy to achieve positive free cash flow by early 2026 through reduced capital expenditures and operational optimizations.
InvestingPro Insights
Recent InvestingPro data and tips provide additional context to Wolfspeed's financial situation and market performance. Despite the recent funding boost discussed in the article, InvestingPro Tips indicate that Wolfspeed "operates with a significant debt burden" and is "quickly burning through cash," aligning with the concerns raised by Mizuho analysts.
The company's financial challenges are further reflected in its market performance. InvestingPro data shows that Wolfspeed's stock has experienced a significant price decline of 60.3% over the past year. However, it's worth noting a recent surge, with a 67.48% price return over the last month, possibly influenced by the news of financial support.
Interestingly, while the article discusses potential industry headwinds, an InvestingPro Tip suggests that the stock's "RSI indicates it's in overbought territory," which could be attributed to the recent positive funding news. This highlights the complex interplay between company-specific developments and broader market sentiment.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for Wolfspeed, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.