Wolfspeed Emerges from Bankruptcy, But Operational and Financial Risks Linger

What happened

Wolfspeed has been operating under Chapter 11 bankruptcy with disclosed substantial doubt about its going concern, facing deep operational losses and negative free cash flow. The DeepValue report highlights underutilization of 200mm fabs, competitive pressures, and complex yield ramps as key headwinds, despite liquidity and potential tax credits offering upside if execution improves. According to a recent article, Wolfspeed emerged from Chapter 11 in September 2025, carrying less debt and positioning itself to expand its 200mm fabrication capabilities. However, this emergence alone does not resolve the fundamental challenges of improving yields, scaling production, or achieving profitability in a competitive market. The company must still demonstrate sustained operational traction to validate any recovery narrative.

Implication

The debt reduction from Chapter 11 emergence provides Wolfspeed with a cleaner balance sheet, potentially lowering financial strain and interest costs. Operational hurdles, such as achieving consistent 200mm yield improvements and scaling device output, remain critical for margin recovery and cash flow generation. Competitive intensity in the silicon carbide market continues to increase, which could erode pricing power and limit market share gains despite expansion efforts. Liquidity remains precarious, with timely receipt of approximately $600 million in tax credits essential to extend runway without further equity dilution. Until clear evidence of sustained operational progress and a path to breakeven emerges, the equity risk-reward profile stays unfavorable, aligning with the DeepValue sell stance.

Thesis delta

The confirmation and emergence from Chapter 11 reduce immediate bankruptcy risk and lower debt burden, partially addressing a watch item for plan confirmation from the DeepValue report. However, the core thesis on operational execution and margin improvement remains unchanged, as profitability hinges on yield gains, cost reductions, and competitive positioning. Therefore, while financial overhang is lighter, the sell recommendation persists until tangible evidence of utilization improvements and cash flow stabilization is demonstrated.