Shares of silicon chip manufacturers Wolfspeed (NYSE: Wolf) It soared 26.9% on Monday. The same goes for the huge day last Wednesday.
Wolfspeed didn't report earnings until May 8, and there was no particularly relevant company news today. However, the start of the earnings season has sparked some cautious optimism that the ultimate market for Wolfspeed may be recovering.
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As of April 15, with such a high share of 41% of stocks accounting for 41% of stocks and 64% of Wolf’s rapid fluctuation, it seems that many sellers have decided (or been forced to) end their positions, resulting in a “short squeeze.”
Wolfspeed has spent billions and assumed huge debts to build silicon carbide (SIC) manufacturing capabilities in U.S. SICs, a difficult material to use, but it also makes more conductive chips, which are especially useful in high voltage, high temperature applications such as electric vehicles (EVs) and other industrial foundations (EVs) and other industrial infrastructures.
Although a strong industrial and automotive market seems far-fetched given the government's tariff policy, industrial and automotive chips have actually been in a protracted recession since rising interest rates in late 2022 to 2023. Starting from 2023, the industrial chip market has declined for seven consecutive years. During that time, Wolfspeed's stock was spread all over the weight of its ambitious investments and moderate demand. The stock has another 47% in March after alleged that the company may not be able to receive its expected $750 million chip bill currency.
However, last week on April 23, Chip Giant Texas Instruments (NASDAQ: TXN)This is also high in the automotive and industrial markets, which it notes that it sees “wide recovery between the entire sector and geographical location” with low inventory in all final markets. TI executive Haviv Ilan said he believes the recovery is real, not just raising the coming tariffs, which he believes is real.
Although Texas Instruments does not make SIC chips like Wolfspeed, it is called a situation in the industrial and automatic chip markets. So Wolfspeed's stock took off the second day last Wednesday, and the rally continued until Friday.
So why is the peak today? It's hard to say, but there's the potential to receive margin from banks over the weekend and therefore forced to end more short positions by buying stocks today.
While the brief squeezes over the past week have canceled a 65% discount on Wolfspeed’s starting low last week, investors should not see it as “all clear”. Wolfspeed is still in debt and may not receive the promised chip bill, which may underline the company despite signs that the end market has recovered. Additionally, Wolfspeed has appointed a new CEO who will begin on May 1. The head of a new company adds more uncertainty.
Currently, there are other automotive/industrial chips that have much less risk than Wolfspeed, which should also see a lot of room for improvement if it is restored. One of Wolfspeed's earning competitors, rather than this loss of meme stock, investors have much less risk, which is more like a lottery.
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Billy Duberstein and/or his clients have positions in Instruments in Texas. Motley fool has a place and recommends Texas Instruments and Wolfspeed. Motley Fool has a disclosure policy.
Why Wolfspeed released 27% again on Monday (again), originally published by Motley Fool