Wolfspeed WOLF shares have declined 7.2% year to date, underperforming the broader Zacks Computer and Technology sector’s decline of 5.7% and the Zacks Semiconductor – Discretes industry’s fall of 4.7%.

The underperformance can be attributed to Wolfspeed's weak financial results in the second quarter of fiscal 2025, led by softness in the industrial and energy markets. Weaker demand in these segments weighed on overall revenue growth, limiting the company's ability to generate stronger top-line performance.

High underutilization costs at Wolfspeed’s manufacturing facilities, along with lower efficiency during its transition to larger-scale production, have added to its financial strain. The resulting decline in the gross margin has further raised investor concerns about its profitability.

While the company's near-term outlook seems unattractive, several factors highlight its strong long-term growth potential, setting the stage for a brighter future.

WOLF Bets on EV Market & Business Growth

Despite the lower revenue levels, Wolfspeed continues to see strong growth in key areas, particularly in the EV market, wherein demand remains robust. This momentum is expected to continue, driving higher revenue contributions in the latter half of fiscal 2025.

WOLF is nearing the completion of a $5-billion semiconductor factory in Siler City, NC, expected to begin production in June 2025. This facility will manufacture advanced silicon carbide crystals for electric vehicles, contributing to significant regional growth.

The expansion of the Mohawk Valley fab is a key development, with revenue increasing sequentially to $52 million. Wolfspeed expects this growth to continue, projecting revenues between $55 million and $75 million for the fiscal third quarter.

Wolfspeed has secured significant support under the CHIPS and Science Act, reflecting its strategic focus on advancing U.S. semiconductor manufacturing. The U.S. Department of Commerce has proposed up to $750 million in direct funding to support the company's expansion of silicon carbide production. This government support and strategic partnership reinforce WOLF’s position in strengthening domestic supply chains and driving technological innovation.

Investors have a positive outlook on the growth potential of the silicon carbide market. S&S Insider projects the company to witness a 9.7% compound annual growth rate (CAGR) from 2024 to 2032, creating significant opportunities for Wolfspeed.

Wolfspeed’s Q3 Forecast Lacks Optimism

For the third quarter of fiscal 2025, WOLF expects revenues of $170-$200 million.
    
The Zacks Consensus Estimate for revenues is pegged at $186.30 million, indicating a 7.17% decrease from the figure reported in the year-ago quarter.
The non-GAAP loss is estimated to be 88-76 cents per share.

The consensus mark for the third-quarter fiscal 2025 bottom line is pegged at a loss of 82 cents per share, widened by 3 cents over the past 60 days. The estimate suggests a sharp decline from the year-ago quarter's reported loss of 62 cents.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

What You Should Do With WOLF Stock?

Wolfspeed is making strategic moves to expand its silicon carbide production and secure government funding. However, challenges such as widening losses, declining gross margins and underutilization costs persist. With a cautious revenue outlook and ongoing financial pressures, investors may consider waiting for clearer signs of stability before entering the stock.

WOLF currently carries a Zacks Rank #3 (Hold), which implies that investors should wait for a favorable time to accumulate the stock.

Better-Ranked Picks

Arista Networks ANET, BWX Technologies BWXT and Cisco Systems CSCO are some better-ranked stocks in the broader tech sector. Each of these 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 ANET, BWXT and CSCO are pegged at 14.41%, 10.13% and 5.10%, respectively.

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This article originally published on Zacks Investment Research (zacks.com).

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