Wolfspeed on the final stage of negotiating a meaningful contract 📈

Wolfspeed (WOLF.US) is gaining more than 22% today following news of the potentially near finalization of the negotiation process regarding a major contract to supply 200mm semiconductor wafers. For the company, this is the strongest upward price movement since the beginning of this year. 

Wolfspeed is a technology company that supplies materials and reworked intermediates for the production of advanced chips. It offers silicon carbide and gallium nitride materials, including bare silicon carbide wafers, epitaxial wafers and gallium nitride epitaxial layers on silicon carbide wafers for the manufacture of RF optoelectronic products, among others.

Bloomberg reports that the company is on track to finalize negotiations for a large contract to supply 200mm semiconductor wafers. From the perspective of the company's finances, the large contract could be a very important element in breaking the performance slump seen in the company's reports since the 1st quarter of the 2022/23 fiscal year. For the past 2 years, the company's average annual revenue growth has been only 4%, and after a dynamic period of revenue growth in 2020-22, the company's sales have stagnated. At the same time, the company has been significantly increasing capital expenditures since the end of the 2022/23 fiscal year, which, given the problems with profit generation (the company ended the quarter with a net profit only once during this period), calls into question the company's ability to expand further. 

Moreover, Wolfspeed has been sharply increasing its debt, which, in an environment of still high interest rates, puts strong pressure on the company's financial cost side. Since 1Q22/23, the company's financial expenses have risen from -$4.8 million to -$60.8 million, and the result from financing activities fell from -$0.5 million to -$34.7 million during the period. 

Wolfspeed chart (1D)

Since mid-2022, the company has been in a strong downtrend, and since July of this year the pace of discounting on the asset has accelerated even more strongly. Since September 10, the downtrend has stabilized, and we can see a potential double-bottom formation on the chart (although it is not clearly outlined. At the same time, today's breakout has strengthened the stock's exit beyond the upper limit of the downtrend, and thus may indicate the braking of supply pressure on the company's assets. If the growth continues, the range of the breakout could reach as high as $14.42. Important from the perspective of the continuation of growth will be the behavior of the price in relation to the 50-session exponential moving average, on which the quotations have currently stopped.

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Wolfspeed stock price. Source: xStation