Wolfspeed (WOLF +9.77%) and Plug Power (PLUG +5.19%) are two companies with big build-out plans and negative gross margins. Wolfspeed emerged from bankruptcy earlier this year, while Plug Power has flirted with bankruptcy for the past couple of years.
Both are speculative stocks, but let's examine which stock is set up to outperform in 2026.
Image source: Getty Images.
The case for Wolfspeed
NYSE: WOLF
Key Data Points
Wolfspeed's decision to file a prepackaged bankruptcy earlier this year largely wiped out old shareholders, but it also left the company in a much better financial position, significantly reducing its debt and improving its balance sheet. At the time of the announcement, the company said it would lower its debt by 70% and its cash interest expense by about 60%.
That said, this did not solve all of the company's problems. Wolfspeed bet big on silicon carbide, which, due to its better performance at high temperatures, is viewed as a better solution than silicon chips in electric vehicles (EVs), as it would lead to faster charging and longer EV ranges. The company spent aggressively to build its John Palmour Materials facility in North Carolina and its Mohawk Valley semiconductor fabrication plant in New York. However, manufacturing silicon carbide chips is difficult, and the company's move to larger 200mm wafers has yet to pan out due to low yields (high defect rate).
This has led to the underutilization of its manufacturing plant and negative gross margins. In the third quarter, its adjusted gross margin was negative 26%, and it generated negative free cash flow of $98.3 million, although it did manage to produce $5.7 million in operating cash flow. However, capital expenditures (capex) are expected to be significantly lower moving forward with its facilities built out.
The key for Wolfspeed going forward, first and foremost, is improving its yields and utilization levels. If it can do that, it helps solve a lot of its issues.
The case for Plug Power
NASDAQ: PLUG
Key Data Points
Plug Power's core business has been selling fuel cell systems that are used in forklifts and other material handling equipment. These types of forklifts are generally used in high-volume warehouses and distribution centers that are constantly in operation. As part of its contracts, the company also sells the hydrogen fuel used to power its fuel cells. The problem with its business model, though, is that the company has also sold its hydrogen fuel at a cost less than it costs to distribute it, leading to negative gross margins and large cash outflows.
This was an unsustainable business model, so the company has been working to become an end-to-end hydrogen solutions company. This includes building out its own network of hydrogen plants, which would allow it to make hydrogen fuel and sell it at a profit. The company now has a few plants up and running, but it hasn't yet scaled to meet its customer commitments and is still seeing negative gross margins.
For Q3, it had a negative adjusted gross profit of $37 million. However, management believes it can get to gross margin breakeven by the middle of next year with the help of increased hydrogen production, price increases, and its Project Quantum Leap restructuring program.
Plug Power is also looking to get involved in the data center market. It recently sold its electricity rights in New York and another location to a data center developer in exchange for cash and the ability to be a backup power source for some developments. It thinks it eventually could become a primary power source for the industry.
The verdict
At this point, both stocks are highly speculative with a lot to prove. However, I think Wolfspeed is the cleaner story, and it will have a new management team in place with the main goal of fixing its yield issue. Plug Power appears headed in the right direction, but the company has a long history of overpromising, and while it's getting a new CEO, he has been with the company for more than a decade.
As such, I think Wolfspeed has the better opportunity to outperform in 2026.
