Is Wolfspeed Stock a Buy on the Latest Dip?

Wolfspeed (NYSE: WOLF) saw its stock price plummet recently after reaching over $80 earlier in the year. The company had been considered a hot pick earlier this spring due to hopes it could be the next AI winner. However, Wolfspeed's troubles began last fall when it emerged from bankruptcy, wiping out significant debt. Despite this, the company still faces several challenges.

One major issue is its negative gross margins, which stand at 25% due to underutilized plants. The transition to larger 200mm wafers and a slowdown in EV demand have caused execution bottlenecks. Additionally, Tesla's reduction in SiC usage has further impacted Wolfspeed. The company's fiscal fourth quarter showed negative gross margins of 25%, with adjusted gross margins at -19.9%. Revenue fell 24% year over year from $197 million to $149.6 million.

While the AI data center revenue did double year over year, it was a 20% sequential decline from $150.2 million in fiscal Q3. The company's net debt is $600 million, and it has negative operating and free cash flow over the past nine months. Wolfspeed guides for quarterly revenue between $140 million and $160 million, with adjusted gross margins needing to reach $800 million to break even.

Despite these challenges, the shift to 800-volt architectures in AI data centers presents a legitimate structural shift and potential upside. However, Wolfspeed remains a highly speculative investment. Analysts do not recommend buying this stock at this point, as it is not among their top 10 for long-term growth.