Wolfspeed (WOLF +4.02%) shareholders have gotten some good news recently. The company has now received its nearly $700 million in tax refunds from the CHIPS Act, and its stock is now up roughly 12% following the news.
Wolfspeed emerged from bankruptcy protections and completed a corporate restructuring earlier this year, and the company continues to have a base support among some meme-stock investors. Is the silicon-carbide (SiC) specialist poised for a bull run after finally securing its CHIPS money, or are dreams of a turnaround misplaced?
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Wolfspeed looks stronger with arrival of delayed CHIPS Act win
With the receipt of the tax refund, Wolfspeed said that it now holds cash and equivalents totaling approximately $1.5 billion. Based on Wolfspeed's updated cash position, the company should have enough capital to fund its operations for at least two more years without the need to raise more capital -- assuming a normalized outlook for losses coming out of its restructuring. While many investors already expected that Wolfspeed would eventually receive its CHIPS tax refunds, actually having the cash is undeniably a bullish development.
Opposition from President Donald Trump's administration to aspects of the CHIPS Act had cast some doubt on the dispersal of the funds, and finally having the cash is good news for the company. With concerns about receiving its CHIPS refund finally in the rearview mirror, the potential for the company to receive additional governmental support also looks more promising.
NYSE: WOLF
Key Data Points
Wolfspeed's business is still in a rough state
Wolfspeed posted sales of $197 million in fiscal Q1, representing a modest improvement over the $195 million in sales recorded in last year's quarter. While the company's net loss in fiscal Q1 skyrocketed to $643.6 million, much of the surge was driven by one-time costs related to its restructuring. The business's operating loss actually narrowed to $161.4 million -- down from $230.1 million in last year's quarter.
Wolfspeed has been able to reduce its operating expenses by trimming its labor force and executing other efficiencies. On the other hand, Wolfspeed posted a gross margin of -39% in the quarter -- worsening from a gross margin of -19% in the prior-year period.
With gross margins in the gutter, the company won't be able to achieve profitability by continuing to cut operating costs. Weak demand for SiC chips in the electric-vehicle market has meant that Wolfspeed hasn't been able to achieve its previously forecasted economies-of-scale benefits, and dramatic improvement in the near term appears unlikely. The timeline for accelerating adoption of SiC chips in the artificial intelligence (AI) data-center market is also highly speculative.
Wolfspeed has yet to demonstrate that it can achieve effective scaling and sustainable margins in the SiC market. While the potential for new instances of governmental support or major sales breakthroughs exists, the stock looks like a very risk play.
