Shares of silicon carbide chipmaker Wolfspeed (WOLF +0.00%) plunged 47.1% in March, according to data from S&P Global Market Intelligence.
Wolfspeed is in a tough spot in an already-adverse environment. The company has spent billions of dollars building up domestic silicon carbide plants in the U.S., and taking on significant debt to do so.
But not only have its key automotive and industrial end markets fallen into a big downturn, but the current tariff uncertainty threatens to harm auto demand even further. That's not a great recipe, and several company-specific events in March added to the risks surrounding the company.
NYSE: WOLF
Key Data Points
Layoffs, a new CEO, and CHIPS Act uncertainty
Wolfspeed had a tough month on several fronts. On March 6, Wolfspeed announced it would lay off another 180 people as part of cost-saving efforts, and that it would also aim to lower its planned capital expenditures by $150 million to $200 million in the next year, its fiscal 2026, with another $30 million to $50 million of cuts in fiscal 2027.
Wolfspeed's stock actually rallied a little bit on the news, as management reiterated its near-term outlook and said it aimed to be free cash flow positive by 2027 as a result of these actions.
Later, on March 27, Wolfspeed announced it was appointing Robert Feurle as CEO, replacing interim CEO Thomas Werner, who took over last fall, after Wolfspeed's prior CEO stepped down.
But it was unclear what effect that announcement might have had on the stock, as the very next day, Wolfspeed's stock plunged nearly in half, accounting for pretty much the entire month's losses, because of a different matter.
That morning, rumors began circulating that the company would not receive the $750 million in CHIPS Act funding that the government had agreed to pay Wolfspeed during the prior administration. As a reminder, the CHIPS Act was passed on a bipartisan basis under the Biden administration, but President Trump has gone on the record saying that he doesn't like the act's subsidies. Not all of the CHIPS money has been disbursed yet, including Wolfspeed's subsidy.
Wolfspeed could certainly use the cash infusion, given that it has about $6.4 billion in debt against $1.4 billion in cash, and that it has burned through $1.15 billion in cash in just the past six months alone.
Hope is not an investment strategy
Wolfspeed has high debt, its key end market of electric vehicles has slowed mightily, and now tariffs threaten demand for autos and industrial investments in general.
That's not a great combination. The only silver lining is that Wolfspeed is attempting to build a lot of manufacturing capacity in the United States. That appears to align with the administration's goals.
While it hasn't been confirmed that Wolfspeed isn't getting its subsidy, it's very unclear if it will, and the magnitude of the March 28 sell-off seems to indicate someone may know that it won't. While semiconductor tariffs could boost demand for Wolfspeed's domestically made silicon carbide wafers and chips, there also needs to be stronger end demand for that to occur. The history of the effect of tariffs on demand is not encouraging on that front.
Moreover, Wolfspeed could restructure or declare bankruptcy at some point and still maintain operations. If that were to occur, debt holders could take over and continue operations, or sell the assets to others. That would still maintain Wolfspeed's domestic production, but current equity holders would probably get zero in that scenario.
With so many stocks down by a lot, there are significantly better risk-reward situations out there to buy. Investors should steer clear.
