Shares of Wolfspeed (WOLF -5.07%) are down 98% since the company began trading under the WOLF ticker in 2021. The company is working with creditors to restructure its massive debt through the Chapter 11 bankruptcy process.
Those are clear signs of a business in deep distress. Still, some speculative investors are drawn to beaten-down stocks like Wolfspeed, hoping for a dramatic turnaround. With meme stocks back in the spotlight, many are hunting for the next Carvana -- which soared 9,400% since the stock bottomed out in late 2022.
Wolfspeed management insists that the business has massive potential. With the right turnaround plan, could it be the next Carvana?
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An aspiring "semiconductor powerhouse"
Wolfspeed designs and manufactures next-generation semiconductor devices. If you're not familiar with Wolfspeed, you might have heard of Cree, which is known for its LED lighting products. Wolfspeed started out as a division of Cree.
In March 2021, Cree sold its LED business, with the goal of creating a "pure-play global semiconductor powerhouse." When Cree rebranded as Wolfspeed on Oct. 4, 2021, the company boasted of a device pipeline worth more than $15 billion and a name that conveys the speed and "noble traits of the wolf."
Wolfspeed markets itself as a pioneer in silicon carbide and creator of "the most advanced semiconductor technology on earth." As a base material for semiconductors, silicon carbide offers several advantages over traditional silicon, including higher efficiency, longer lifespan, and a more compact form factor. Those characteristics make it ideal for use in electric vehicles (EVs), battery storage, renewable energy, and data centers, among other applications with high power requirements.
Betting big on EV adoption
To support its grand ambitions of spearheading global adoption of silicon carbide, Wolfspeed has invested heavily to add manufacturing capacity. In upstate New York's Mohawk Valley, the company spent more than $1 billion to build what it calls the world's largest 200-millimeter silicon carbide fabrication facility. The diameter of the wafer -- the base material for a microchip -- is the essential metric in semiconductor manufacturing. A 200-millimeter wafer allows for more chips per wafer than a 150-millimeter wafer, which makes it more cost-effective.
In North Carolina, Wolfspeed built a $5 billion manufacturing facility to produce 200-millimeter silicon carbide wafers, which will supply the Mohawk Valley fab. To help offset the costs of its expansion, Wolfspeed was set to receive $750 million in CHIPS Act funding, which the Department of Commerce awarded last October. However, it's unclear when -- or if -- President Donald Trump's administration will release the funds.
Wolfspeed's infrastructure investments are a big bet on electric vehicles, which are expected to drive most of the near-term demand for silicon carbide chips. But a recent slowdown in EV adoption has been a major headwind for the company. Over the past nine months ending March 30, Wolfspeed's net revenue declined 8% to $560.6 million, compared to the year-ago period.
Wolfspeed's net cost of revenue rose 24% during that same timeframe. Factory start-up costs doubled to $66 million, and its net loss widened 36% to $940 million. As of Wolfspeed's third quarter of fiscal year 2025, which ended March 30, the company was sitting on nearly $3.5 billion in long-term debt and $6.7 billion in total long-term liabilities.
C-suite shakeups and capital restructuring
As I alluded to earlier, Wolfspeed is taking steps to shore up its balance sheet and recalibrate for the future. The company recently struck a deal with vendors that will cut its overall debt by $4.6 billion and reduce its annual cash interest payments by 60%. Wolfspeed has also reduced its workforce and closed factories that produce smaller wafers. By focusing on larger 200-millimeter wafers, the company believes it will be more competitive in its target markets.
C-suite shakeups are common when businesses struggle. Since March, Wolfspeed has appointed a new CEO, CFO, COO, and vice president of automotive. When Wolfspeed appointed industry veteran Robert Feurle as CEO in March, he expressed optimism that the company would be able to "refresh the operating plan, improve financial performance and accelerate our path to positive free cash flow."
Does any of this make Wolfspeed a buy now?
Not for most investors. Even if you believe in Wolfspeed's long-term potential, the current shares will become worthless under the company's restructuring plan. Instead of keeping your full investment, you'll only get 3% to 5% of the new company that emerges after the restructuring. This is a common outcome in Chapter 11 reorganizations.
The company has said it expects to conclude bankruptcy proceedings in the next month or two. Unless you're betting on a miraculous turnaround between now and then, it's better to wait until after Wolfspeed completes its restructuring to consider starting a position.
