Wolfspeed Stock Up 100% in 3 Months; Why There’s More to Come

Investors Should Keep an Eye on WOLF Stock

Semiconductor stocks continue to be under pressure due to a host of factors, including supply chain disruptions, lower demand, and the U.S. government’s move to restrict the sale of advanced semiconductor chips to China.

The semiconductor sector is undergoing a significant transformation. Many countries are building up domestic microchip production capacity and investing heavily in research.

In the U.S., this focus resulted in the recently passed CHIPS and Science Act, which aims to boost American technological competitiveness while targeting China. The act includes more than $52.0 billion in federal funding for U.S. companies.

One way of playing the expansion of the semiconductor industry is via shares of companies that develop key technologies used by chipmakers.

For instance, Wolfspeed Inc (NYSE:WOLF) develops critical silicon carbide products used to construct microchips. The company has been improving its financials and has plenty of backers on Wall Street, with 602 institutional investors holding the majority of Wolfspeed stock. (Source: “Wolfspeed, Inc. (WOLF),” Yahoo! Finance, last accessed September 21, 2022.)

Wolfspeed Stock Outperforming the Market

After plummeting to a 52-week of $58.07 in June, WOLF stock doubled in price after Wolfspeed Inc reported strong quarterly results.

Wolfspeed stock has easily outperformed the market, managing a six-percent gain this year, compared to a 26% decline by the Nasdaq and a 36% decline by the PHLX Semiconductor Sector (INDEXNASDAQ:SOX).

The below chart shows the bullish upside trade gap in WOLF stock as it looks to break resistance at $125.00. A breakout could see shares of Wolfspeed Inc retest their highs.

Also note the divergence between Wolfspeed stock and the Nasdaq since August. WOLF stock’s ability to hold and outperform the stock index points to investor optimism about the semiconductor stock.

Chart courtesy of StockCharts.com

Wolfspeed Inc Ramping Up Its Revenues

The key for Wolfspeed at this stage is for the company to increase its revenues. Profitability will come down the road.

After a disastrous 56.4% revenue decline in fiscal 2020 (ended in June), Wolfspeed Inc grew its revenues in fiscal 2021 and 2022.

Fiscal YearRevenuesGrowth
2018$924.9 MillionN/A
2019$1.0 Billion16.8%
2020$470.7 Million-56.4%
2021$525.6 Million11.7%
2022$746.2 Million42.0%

(Source: “Wolfspeed Inc.” MarketWatch, last accessed September 21, 2022.)

Analysts estimate that the company’s impressive revenue growth will continue for at least the next two fiscal years. They expect Wolfspeed Inc to increase its revenues by 43.4% to $1.1 billion in fiscal 2023 and by 41.8% to $1.5 billion in fiscal 2024. (Source: Yahoo! Finance, op. cit.)

While Wolfspeed Inc’s forward multiple still looks high at 9.6 times its consensus fiscal 2024 revenue estimate, the fact that the company’s revenues have been rising at such high rates supports the high premium.

Analyst Take

My view is that the recent focus around the world on building up domestic semiconductor industries will help drive long-term growth of the sector. This will help power up the demand for Wolfspeed Inc’s products.

As such, I would look at WOLF stock’s current price weakness as an opportunity.