By Brian Swint

Shares of semiconductor maker Wolfspeed were plunging early Friday as Citi cut its rating. Earnings that fell in line with expectations weren't enough to reassure investors worried about its debt.

The problem is that it was promised $750 million from the government under Joe Biden's CHIPS Act, but receiving it may be a problem as President Donald Trump tries to undo his predecessor's work. At the same time, it has a $575 million payment due to creditors next year.

The company, which produces silicon wafers in the U.S., has seen a lot of short interest this year -- when traders bet that the stock will drop. The shares went through a short squeeze last month, when investors bid up the stock price to force short sellers to unload their shares.

On Thursday after the bell, Wolfspeed introduced a new chief executive in Robert Feurle and said it's slimming down its management team by 30%. Chairman Tom Werner said that the company is still working with lenders "to address our capital structure so that Wolfspeed has a strong financial foundation." Executives didn't take questions on the earnings call with analysts.

Wolfspeed shares plunged 20% in Friday's premarket to $3.57. The stock has traded as high as about $7.50 this year and as low as about $2.50. Shares have lost 80% in the past 12 months.

"Wolfspeed faces significant financial challenges in a sluggish macro environment with financial losses, high leverage, CHIPS Act funding challenges underpinning doubts over going concern," said Atif Malik, an analyst at Citigroup. They cut the target price to $3 from $7 and downgraded it to Sell.

Piper Sandler analysts led by Harsh Kumar weren't as harsh, but did move their price target to $6 after the results. "WOLF has many steps ahead of itself to complete its turnaround but is course-correcting appropriately at this time," they wrote in a note.

Write to Brian Swint at brian.swint@barrons.com

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May 09, 2025 08:50 ET (12:50 GMT)

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