Wolfspeed's (WOLF +0.00%) stock price surged 32% on Aug. 18 after the semiconductor company posted its fourth-quarter earnings report. Its revenue rose 57% year over year to $228.5 million, which beat analysts' estimates by $20.9 million. Its adjusted net loss narrowed from $26.9 million to $2.9 million, or $0.02 per share, which also cleared the consensus forecast by eight cents.
For the first quarter of fiscal 2023, which started at the end of June, Wolfspeed expects its revenue to grow another 48%-58% year over year, with an adjusted net loss of $0.02 to $0.08 per share. Analysts had anticipated 48% revenue growth with an adjusted net loss of $0.06 per share.
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Wolfspeed's headline numbers and guidance look promising, but should investors chase its post-earnings rally? Let's review what Wolfspeed does, how fast it's growing, and if it's still reasonably valued.
A new name for an old company
Wolfspeed is a 35-year-old company that was known as Cree until last October. It changed its corporate name and ticker because it now sells most of its products under its Wolfspeed brand. It sells silicon carbide materials, power-switching devices, and RF chips to a wide range of industries.
NYSE: WOLF
Key Data Points
Wolfspeed differentiates itself from its industry peers by producing wide-bandgap (WBG) semiconductors, which are made with silicon carbide and gallium nitride materials. WBG semiconductors can operate at higher voltages, temperatures, and frequencies than chips that are produced with more conventional materials like silicon and gallium arsenide. That energy efficiency makes WBG chips ideal for short-length LEDs, lasers, 5G base stations, and military radars. Electric vehicle manufacturers also use silicon carbide to produce their batteries and powertrains.
Wolfspeed expects the ongoing transition from silicon to silicon carbide chips to drive its long-term growth, and it recently opened the world's largest 200mm silicon carbide plant in upstate New York to support those plans. Over the past few years, it made several divestitures and acquisitions to streamline its business around the Wolfspeed brand and its silicon carbide chips. It acquired Infineon's (IFNNY 1.12%) RF power business for about $350 million in 2018, sold its lighting division to Ideal Industries in 2019, then sold its LED business to SMART Global (SGH 0.18%) for $300 million in 2021.
How fast is Wolfspeed growing?
Wolfspeed's growth decelerated in fiscal 2020 as it struggled with pandemic-related disruptions and the cyclical softness of China's EV market. However, its revenue rose again in fiscal 2021 as those headwinds passed and the automotive and RF chip markets recovered.
|
Period |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
FY 2022 |
|---|---|---|---|---|---|
|
Revenue Growth (YOY) |
1% |
17% |
(16%) |
12% |
42% |
|
Gross Margin (Non-GAAP) |
34% |
37% |
36% |
34% |
36% |
Data source: Wolfspeed. YOY = Year over year. GAAP = Generally accepted accounting principles.
Wolfspeed's growth then accelerated significantly in fiscal 2022 as its 200mm plant opened and it sold more materials and chips to the auto, industrial, and energy markets. Its non-GAAP (generally accepted accounting principles) margins also held steady in the mid-30s even as its top-line growth fluctuated.
The company didn't provide any guidance beyond the first quarter, but analysts expect its revenue to grow more than 40% in both fiscal 2023 and fiscal 2024. They also expect its operating margin to turn positive in fiscal 2023, and for the company to generate a full-year profit in fiscal 2024.
Investors should take those rosy estimates with a grain of salt, but the recently passed CHIPS Act could generate tailwinds for Wolfspeed with subsidies and tax breaks for its plants. During the company's latest conference call, CEO Gregg Lowe said the CHIPS Act could "provide some possible funding for the next phase of our extension plans."
Is it too late to buy Wolfspeed?
Wolfspeed's stock has already risen more than 40% over the past 12 months as the Philadelphia Semiconductor Index declined 5%, and it certainly isn't cheap at eight times this year's sales. Skyworks Solutions (SWKS +0.09%) -- which produces more traditional wireless, RF, and power chips -- is growing at a much slower rate, but trades at just three times this year's sales.
But I personally don't think Wolfspeed is overvalued yet, since it leads the niche market of silicon carbide chips, which could become increasingly important for energy-efficient devices like EVs. Therefore, I believe it's still worth buying right now -- but investors should brace for a lot of near-term volatility.
