'Crouching tiger': Citrini Research recommends power-chip maker Wolfspeed

Research firm Citrini Research, which rattled investors earlier this year with apocalyptic forecasts about the economically destructive effects of AI adoption, has recently made a bet on still-unprofitable semiconductor materials maker Wolfspeed, which it outlines in a new report. Citrini describes the small-cap company as a likely beneficiary of the next phase of the AI boom, even though it filed for bankruptcy protection just last June, while its latest quarterly earnings report confirmed it remains unprofitable.

Wolfspeed shares rose 8% in trading on Thursday after surging 20% on Wednesday. Year to date, the company’s market value has climbed more than 270%.

Wolfspeed manufactures semiconductor materials and components based on silicon carbide (SiC). According to Citrini Research, AI demand will outweigh the challenges facing analog and power semiconductor manufacturers, particularly because of an expected shortage of multilayer ceramic capacitors (MLCCs), which Wolfspeed specializes in, the report said.

The company produces power electronics – components that enable efficient operation under extremely high electrical loads, temperatures, and voltages. The technology has become increasingly important for data centers. SiC chips are also widely used in power grids, military systems, and industrial electronics. Wolfspeed invested billions of dollars in new factories and large-diameter SiC wafer production, Business Insider wrote. Its SiC chips are used in electric vehicle power systems, inverters, and fast-charging equipment. However, the company was forced to restructure its debt and file for bankruptcy protection last year because of its growing debt burden.

“Wolfspeed is a crouching tiger getting ready to reveal a dragon that deserves to not just be priced based on what their fab's replacement value theoretically is, but reflect the fact that it's not going to be replaced. By anyone,” Citrini analysts wrote. “They're the only game in town.”

The analysts said the company had aggressively built out capacity ahead of future demand – so aggressively, in fact, that it went bankrupt. But Citrini now believes Wolfspeed is ideally positioned because the AI boom is likely to trigger a sharp increase in demand for its products.

“The capex looked (and was) value destructive in 2023,” the report said. “By 2027, it will look like one of the most prescient infrastructure bets in the wide-bandgap industry. The market is beginning to price this as a turnaround – we think it should be priced as an unavoidable beneficiary.”

In the third quarter of its fiscal 2026, ended March 29, Wolfspeed saw revenue fall 19% year over year to $150 million. Its net loss totaled nearly $120 million. The gross margin remained negative at minus 27%, and free cash flow came in at minus $90 million.

At the same time, after bankruptcy the company reduced its debt by about $97 million, cut future annual interest expenses by roughly $62 million, and currently has about $1.2 billion in liquidity on its balance sheet.