Wolfspeed (NYSE: WOLF) was one of the best performers on Wall Street today. The stock climbed as high as 10% to finally end the session just below $25 per share. While that’s still a far cry from its 52-week high of $70, Wolfspeed investors aren’t complaining after watching shares slashed in half year-to-date.

The Durham, North Carolina-based company, whose silicon carbide technology is used in EVs around the world, is reportedly the target of an activist investor campaign. Jana is pushing management to eye a sale or other strategic options. Investors might agree that selling is the best course of action for a stock that’s been stuck in the doldrums for too long. And with an M&A target price of $126 per share given by Goldman Sachs, Wolfspeed CEO Gregg Lowe is most likely weighing his options.

Meanwhile, Jana, which describes its stake in the company as “significant,” wants to see Wolfspeed consider “all avenues to improve” the stock’s performance while initiating a “comprehensive review of strategic alternatives.” 

Asia Slowdown

Wolfspeed has been one of the casualties of China’s EV demand slowdown, one that’s triggered pricing wars among the industry’s top automakers. It’s been one step forward and two steps back, as any momentum from domestic EV demand has been offset by weakness in Asia’s industrial and energy markets. Management predicts industrial market weakness, which isn’t limited to Asia, will persist for a while before eventually coming back.

The company is in the process of redirecting the inventory build-up that was intended for Asia elsewhere. And they have been signing long-term extension agreements with clients. As the world’s largest silicon carbide maker, Wolfspeed believes they have an advantage because of their “domain expertise,” according to the latest earnings call.

Weighing on performance have been “startup and underutilization costs” associated with expanding the company’s footprint in anticipation of growth. Wolfspeed is experiencing heavy startup costs for facilities that have yet to generate any revenue. 

While Wolfspeed has $2.6 billion of cash and liquidity on hand, Jana would like them to hit the brakes on European expansion plans. The company’s fiscal Q3 outlook includes expectations for a non-GAAP net loss of between $87 million and $71 million. 

Is Wolfspeed a Buy in 2024? 

If you’re thinking of scooping up Wolfspeed shares, you might not have too much time if Jana has its way. Before the activist activity, Wells Fargo was an early-mover by lowering its price target from $55 to $30 with an “equal weight” rating. JPMorgan also sees weakness in the stock, lowering its price target from $43 to $35.

Reports suggest short interest in the stock has been rising, with the 19 million-plus shares shorted representing nearly 16% of the company’s floating stock. Wolfspeed is expected to report its fiscal Q3 results on May 1. Investors will surely be looking for answers then.

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