Wolfspeed's Operational Decline Persists Amid Bankruptcy and Restructuring Efforts

What happened

Wolfspeed reported another weak quarter with sales and adjusted EBITDA falling to multi-year lows, driven by sluggish EV demand and bankruptcy-related market share losses. Even a 50% sequential jump in AI data center revenues couldn't counterbalance these headwinds, highlighting deep operational challenges. Restructuring has cut debt and non-GAAP operating expenses substantially, and capital expenditures have peaked, offering some financial relief. However, the company remains in Chapter 11 with disclosed substantial doubt about its going concern, as per the DeepValue report, underscoring severe fundamental risks like sustained operating losses and negative free cash flow. The path forward depends on executing the 200mm yield ramp, securing tax refunds, and finalizing the restructuring plan to reduce debt and interest costs.

Implication

The ongoing Chapter 11 proceedings and operational declines create high uncertainty for equity recovery, making Wolfspeed a speculative investment. Debt reduction and lower capex are positive but insufficient to offset persistent losses and intensifying competitive pressures in silicon carbide markets. Liquidity from a potential $600 million tax refund could provide a buffer, but delays or execution missteps could worsen the financial strain. Key factors to monitor include confirmation of the restructuring plan, progress on Mohawk Valley yield gains, and stability in pricing amid market competition. Until clear operational traction and plan confirmation are demonstrated, the risk-reward profile remains unfavorable, reinforcing the sell recommendation.

Thesis delta

The new article highlights tax refunds as an offset to challenges, but this is already factored into the DeepValue report's upside scenario without changing the core risks. No material shift in thesis occurs; the sell rating persists due to ongoing execution uncertainties and bankruptcy complexities. Investors should await concrete evidence on tax credit timing and yield improvements before considering an upgrade.