Wolfspeed WOLF shares have fallen 22% in the past month, underperforming the broader Zacks Computer and Technology sector’s growth of 3.5% and the Zacks Semiconductor – Discretes industry’s decline of 10%.

The underperformance can be attributed to its dismal financial performance in the first quarter of fiscal 2025, as reported on Nov. 6.

Wolfspeed recorded revenues of $194.7 million, declining 1.4% from the prior-year period and missing the Zacks Consensus Estimate of $200 million. The non-GAAP gross margin dropped to 3.4%, led by a lower revenue mix from the industrial and energy sectors, along with reduced product margins from the Durham Fab.

Additionally, the company is facing rising restructuring costs due to its facility closures and consolidation efforts as it transitions to a 200mm wafer device fabrication technology from the current 150mm. WOLF’s heavy reliance on foreign sales and growing competition from China in the silicon carbide market are putting pressure on the company.

Challenging Q2 Outlook for Wolfspeed

For the second quarter of fiscal 2025, Wolfspeed expects revenues of $160-$200 million.

The Zacks Consensus Estimate for revenues is pegged at $179.42 million, indicating a 13.91% decrease from the figure reported in the year-ago quarter.

Non-GAAP losses are estimated to be in the band of 89 cents to $1.14 per share.

The consensus mark for earnings is pegged at 98 cents per share, revised downward by 9 cents over the past 60 days. This forecast suggests a year-over-year decline of 78.18% and significant challenges from last year.

Everything Not So Gloomy for WOLF

Wolfspeed is focusing on strengthening its capital structure and streamlining its operations costs by focusing on producing advanced 200mm silicon carbide products. This move aims to enhance yields and reduce costs, positioning the company for improved profitability.

The company is building state-of-the-art silicon carbide facilities at Mohawk Valley and North Carolina locations to generate around $3 billion in annual revenues from its 200mm silicon carbide production.

WOLF aims to benefit from the growing demand for silicon carbide in electric vehicles (EVs), and the industrial and energy markets. These sectors are experiencing significant growth as the world shifts toward cleaner and more efficient technologies.

Wolfspeed has secured up to $2.5 billion in funding, including $750 million under the CHIPS Act and another $750 million from its lending group. This funding strengthens the company’s ability to expand its U.S. production, supporting its long-term growth and market position.

Although demand is expected to ramp more slowly, Wolfspeed is capturing a significant EV market share. In the first quarter of fiscal 2025, the company achieved $1.3 billion in design wins, the third-highest on record, and $1.5 billion in design-ins, with about 70% linked to EV platforms.

Wolfspeed’s Zacks Rank

WOLF currently carries a Zacks Rank #3 (Hold).

Wolfspeed has taken steps to secure funding and achieve design milestones. However, it is facing challenges, including declining gross margins, wider net losses, restructuring costs and a cautious revenue forecast. Given these factors, it may be wise to wait for a more favorable entry point before investing in the stock.

Better-Ranked Picks

NVIDIA NVDA, Fortinet FTNT and OSI Systems OSIS are some better-ranked stocks in the broader tech sector. Each of the three stocks currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rates for NVDA, FTNT and OSIS are pegged at 20.00%, 18.28% and 12.85%, respectively.

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