What happened

Shares of Wolfspeed (WOLF 6.56%), formerly known as lighting specialist Cree, were plunging today, down 14.8% as of 3:11 p.m. ET, nearly three times the huge 5.5%-plus drop in the Nasdaq Composite.

Wolfspeed fell harder than the indexes, as it posted quarterly earnings that missed revenue expectations, although it beat on its bottom line. Still, Wolfspeed remains unprofitable as it transitions into a pure silicon carbide play, with those products just ramping up. Unprofitable growth stocks are having a much harder time these days, given the concerns over inflation and interest rates.

So what

In the first quarter, Wolfspeed delivered 37% revenue growth to $188 million. While 37% growth sounds impressive, that figure was about $2.6 million below expectations. Management attributed the lighter top line to lockdowns in China, which affected some advanced packaging subcontractors.

Wolfspeed also delivered a non-GAAP (GAAP) loss per share of $0.12. That actually beat expectations, but again, remained in the red. The company even put forward what looked to be solid guidance of $200 million to $215 million in revenue, a sequential increase of 10.4% at the midpoint, and adjusted net losses improving at the midpoint to a range between $0.07 and $0.13 per diluted share. Yet on days like today, investors are not as enthused.

One other element that could be leading to the decline was management increasing its outlook for capital expenditures this year, raising guidance to $550 million in spending versus previous guidance of $475 million. While Wolfspeed should definitely invest in its new plants to ramp up silicon carbide solutions as fast as possible, this is just not the market environment for this kind of announcement. Investors are concerned about inflation and interest rates, and therefore looking toward profitable companies generating cash flow today, not out in the future.

A person lies face up in front of laptop showing a market crash.

Image source: Getty Images.

Now what

The silicon carbide market is supposed to grow very fast in the coming years, with some analysts projecting 18.7% compound growth for the industry between 2021 and 2026. That's because silicon carbide has high thermal properties for power electronics applications, especially electric vehicles.

Despite those tantalizing growth prospects, chip production costs money, and investors are not willing to give unprofitable growth companies investing in the future the benefit of the doubt today. With China's lockdown hiccups affecting current revenue and costs rising for Wolfspeed, it's no wonder it's falling hard today.