Wolfspeed Inc. shares experienced a sharp decline on Wednesday, dropping 14.3% to $63.00 as the recent surge in AI power-chip stocks lost momentum. The stock traded in a wide range between $56.55 and $78.00, while the iShares Semiconductor ETF (SOXX) slipped about 1.1%. Broader technology stocks were nearly flat on the day.
The selloff highlights the volatile nature of the AI power-chip sector, where investors are reassessing valuations after a rapid run-up. Wolfspeed, a manufacturer of silicon carbide (SiC) power chips, had been riding high on optimism about AI data center demand. However, the pullback suggests that traders are questioning whether the growth story can deliver on its promises.
The initial spark for the group came a day earlier when Vicor raised its second-quarter revenue guidance to $142 million from $126 million, citing higher product revenue and royalties from a new licensee. Barron's reported that the news lifted Wolfspeed, Navitas Semiconductor, and Monolithic Power Systems on Tuesday. However, by Wednesday, the read-through was mixed. Vicor gained 3.9%, but Navitas lost 9.2%, and Monolithic Power fell 2.5%, leaving Wolfspeed exposed after its own big move.
Part of the May rally was fueled by a bullish note from Citrini Research, which argued that the AI buildout is inheriting parts of the electric-vehicle supply chain. Business Insider reported that Citrini called Wolfspeed 'the only game in town' in its niche, helping fuel a sharp rally earlier this month.
Despite the market enthusiasm, Wolfspeed's fundamentals remain challenging. In its fiscal third quarter, the company reported revenue of $150.2 million, a gross loss of $40.0 million, and a net loss of $119.9 million. A gross loss indicates that production costs exceeded sales before overhead and other expenses. The company also reported about $1.2 billion in cash, cash equivalents, and short-term investments, stating it has enough liquidity for at least one year after the filing date.
Management has tried to keep investors focused on the balance sheet and product roadmap. Chief Executive Robert Feurle said the company made 'meaningful progress against our priorities,' while Chief Financial Officer Gregor van Issum called the quarter 'another major step' in strengthening the balance sheet after a refinancing cut total debt by $97 million and was expected to lower annual interest expense by $62 million.
The backstory is still fresh. Wolfspeed emerged from Chapter 11 bankruptcy protection after slashing debt by nearly 70% and annual cash interest costs by about 60%, as reported by Reuters last year. The company's restructuring has improved its financial position, but the turnaround story is still in its early stages.
The risk for traders is clear. A March SEC prospectus registered the potential resale of up to 32.9 million shares tied to a selling stockholder, including shares from convertible notes and warrants. Wolfspeed said it would not receive proceeds from those sales and that registration did not mean the stockholder would sell, but the filing keeps share-supply pressure in view.
The downside case is straightforward: if AI data-center demand takes longer to materialize in Wolfspeed orders, or if electric-vehicle and industrial weakness persists, negative margins and possible share supply could cap rallies. A stronger case would require harder evidence that the AI power story is moving from market narrative into revenue.
For now, Wednesday's drop indicates that traders are not done testing that story. Wolfspeed remains a leveraged bet on AI power demand and on whether a company that just repaired its balance sheet can turn that theme into profitable sales before patience runs thin.
