Wolfspeed (WOLF) Sees Surge in Volume On Stock and Options Trading

Wolfspeed, Inc. (NYSE:WOLF) caught the attention of the market on Wednesday with a significant surge in options trading, and a marked increase in volume. Investors snapped up 20,645 call options on the company—a 10% increase over the average volume. Wolfspeed's stock also saw a notable increase, gaining 15.22% on the day with with almost four times the average daily volume changing hands (38.3m shares, against ADV of 9.73m).

The wave of bullish sentiment on WOLF is clear, with shares gaining 63% over the last week of trading. Looking out over a longer time-frame, and the picture becomes quite different, with the stock actually down 63% on a YTD basis, even considering the recent upswing. Momentum may be shifting then, but what is behind the sudden shift?

This uptick in options trading isn't the only sign of increased interest in Wolfspeed. Notable institutional investors, including Lazard Asset Management LLC, Vanguard Group Inc., Boston Partners, B. Riley Wealth Advisors Inc., and Quadrature Capital Ltd, have adjusted their stakes in the company. These shifts in investment positions often indicate a change in investor outlook and could precede momentum in the company's stock price.

A recent note from Roth MKM helped set the first wave of momentum, with the firm keeping in tact their Buy rating and $25 price target in anticipation of some supply deals of 200mm wafers to a few major third-party customers, and the expectation of CHIPS act funding.

An upgrade from JP Morgan with the firm's price target shifting up to $15 from the previous mark of $10 then followed suit on the CHIPS funding announcement, albeit with a Neutral rating and some commentary surrounding the importance of execution by Wolfspeed being “paramount from here”.

Funding came in three waves; $750million of proposed funding from the US Department of Commerce in relation to the CHIPS and Science act, $750million in financing from a group led by Apollo, and $1B in Section 48D cash tax refunds from IRS. The total coming on the same day of some $2.5 billion has seemingly given the bulls plenty of ammunition to support their cause.

Despite the current rally, the bearish sentiment that had engulfed the firm through the year so far indicates that the company is not without challenges. Wolfspeed's recent earnings report revealed an earnings per share (EPS) of ($1.06), falling shy of Wall Street's consensus estimates by $0.03. The company also reported a negative net margin and a negative return on equity which will need to be improved upon should the bulls wish to continue to hold momentum. These figures highlight the company’s struggle to achieve profitability despite its position in the US semiconductor sector.

Analysts remain mixed in their outlook for Wolfspeed, setting various price targets ranging from “overweight” to “neutral.” Amid various ratings, the consensus price target rests at $17.54, which continues to reflect positive potential upside from here. With the high bar of $30 against a low of $8, the gulf in outlook on the street is clear. With recent announcements fresh in the eyes of analysts, it is worth noting that further shifts in target may come from either side of the line.

Wolfspeed specialises in advanced semiconductors, specifically silicon carbide and gallium nitride (GaN) technologies. These materials are essential for high-performance electronics and are increasingly in demand in global markets. Wolfspeed serves a diverse client base across Europe, Hong Kong, China, the Asia-Pacific region, and the United States.

While Wolfspeed faces financial headwinds as indicated by its earnings shortfall, there is a clear interest in the company's stock, as seen by the considerable options trading and increase in the stock price, on heavy volume. With speculation about the stock's future performance, investors and analysts alike will be closely observing Wolfspeed's next move.