Axcelis Technologies (ACLS 0.96%) and Wolfspeed (WOLF 5.74%) represent two different ways to invest in the niche market of silicon carbide chips, which can operate at higher voltages, temperatures, and frequencies than traditional silicon chips.
Axcelis' ion implantation systems can be used to produce silicon carbide by implanting carbon ions into silicon. Its systems are also used in the production of DRAM and NAND memory chips, image sensors, and other types of silicon chips. Wolfspeed produces wide-bandgap (WBG) semiconductors that are made from silicon carbide.
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The increased resilience of silicon carbide chips makes them ideal for short-length LEDs, lasers, 5G base stations, and military radars. Electric vehicle (EV) makers have also been using silicon carbide to produce more power-efficient powertrains. That increased adoption could cause the silicon carbide market to expand at a stunning compound annual growth rate (CAGR) of 32.6% from 2024 to 2029, according to Markets and Markets.
That growth potential should have brought a stampede of bulls to Axcelis and Wolfspeed. But over the past 12 months, Axcelis' stock has shed nearly a fifth of its value, and Wolfspeed's stock was cut in half. Let's see how both of these stocks ran out of juice -- and if either stock is worth buying as a long-term play on the silicon carbide market.
Axcelis is bracing for a major slowdown in 2024
Axcelis' revenue rose 39% in 2022 and 23% in 2023. It benefited from the expansion of the silicon carbide market, which accounted for over a third of its total system revenue in 2023, as well as the cyclical growth of the 5G, analytics, and AI markets.
But in 2024, it expects its revenue to nearly flatline as it deals with a cooling EV market, the memory market's cyclical downturn, and tough macro headwinds in China -- which accounted for nearly half of its revenue in 2023. Analysts expect its revenue and earnings to decline 1% and 8%, respectively, for the full year.
That slowdown is disappointing, but its gross margins still improved throughout 2023 as it reduced its costs of goods sold. It expects its gross margin to expand again in 2024, which suggests it still has plenty of pricing power in its niche market.
For 2025, analysts expect Axcelis' revenue and earnings to grow 12% and 24%, respectively, as the macro environment warms up, the memory market recovers, and the EV industry stabilizes. The stock also still looks cheap at just 15 times forward earnings.
Wolfspeed is spooking the bulls with its spending plans
Wolfspeed's revenue rose 42% in fiscal 2022 (which ended in June 2022) and 24% in fiscal 2023. Like Axcelis, it benefited from the rising adoption of silicon carbide chips across the 5G, analytics, AI, and EV markets.
That's why it isn't surprising that Wolfspeed also faces a similar slowdown. Analysts expect its revenue to decline 10% in fiscal 2024 as it remains unprofitable by both generally accepted accounting principles (GAAP) and non-GAAP measures.
But as Wolfspeed's growth cools off, it's ramping up its spending on the expansion of its plant in upstate New York and the opening of its second plant in North Carolina. That expansion could help it keep pace with STMicroelectronics, Infineon Technologies, and other chipmakers in the silicon carbide race, but it will crimp its near-term margins. Analysts expect its non-GAAP net loss to widen this year.
That ugly combination of declining sales, rising costs, and red ink drove away the bulls, and its stock still isn't a screaming bargain at 4 times this year's sales. Nevertheless, analysts expect its revenue to rise 42% in fiscal 2025 with a narrower net loss as the macro situation improves and it reaps the benefits of its upgraded plants.
The better buy: Axcelis
Axcelis and Wolfspeed could both bounce back as the silicon carbide market warms up again. But if I had to choose one right now, I'd pick Axcelis because its revenue growth is more stable, it's more profitable, and it's a less capital-intensive way to profit from the secular expansion of the silicon carbide market.
