Unmissable AI Stock Possessing Potential to Unfold Exceptional Gains over the Decade
The impact of artificial intelligence (AI) is undeniable, and a recent McKinsey & Company report estimates that generative AI could add between $2.6 trillion and $4.4 trillion in annual value to various use cases, equating to the United Kingdom's entire GDP. This technological evolution requires enormous computing capacity, driving an unprecedented demand for specialized semiconductors.
In this context, silicon carbide (SiC) semiconductors emerge as a game-changer compared to traditional silicon, especially in high-temperature and high-power environments. These chips can deliver impressive energy efficiency, sometimes exceeding 40%, and can operate at temperatures beyond 200 degrees Celsius. Consequently, SiC chips are essential in tackling power consumption and heat management challenges in data centers running AI applications.
With this trend gaining momentum, a key contender stands to capitalize on the growing demand: Wolfspeed. Wolfspeed takes the lead in the SiC semiconductor market with its wide-bandgap chips, which handle higher voltages and frequencies than traditional silicon semiconductors, reducing energy loss in power-intensive applications. Global Markets Insights projects that the SiC chip market will grow by an astounding 30% annually through 2032.
Wolfspeed has made substantial investments to remain competitive in this ultra-high-growth market. The company recently opened the world's largest 200 millimeters (mm) SiC manufacturing facility in New York and is constructing a second plant in North Carolina. Switching to 200mm wafer production provides a significant advantage, as this larger wafer size permits substantially higher production efficiency compared to the industry-standard 150mm wafers. Combined with its new facilities, Wolfspeed expects this transition to decrease die costs by at least 50%.
Despite Wolfspeed's market dominance in SiC technology, the company's stock trades below 1x trailing sales, reflecting near-term challenges such as high expansion costs and temporary slowdowns in electric-vehicle (EV) demand. Factors like rising interest rates and recent export restrictions on key metals from China make matters even more complex.
However, analysts predict a healthy 46% revenue surge in fiscal 2026 as production capacity expands and demand accelerates. To bolster its financial position, Wolfspeed raised $200 million through an equity offering in 2023.
Another crucial development is the U.S. CHIPS Act, which could provide Wolfspeed with up to $2.5 billion in funding if the company passes certain criteria. Affordable U.S. manufacturing capacity expansion could result from CHIPS Act grants, debt financing, and Section 48D tax credits.
Although recent political developments have injected some uncertainty into CHIPS Act funding, the bill's strong bipartisan support suggests that the funding will likely materialize, even if with potential delays.
Wolfspeed's position in the SiC market is not without risk, as larger competitors like Infineon and ON Semiconductor are actively entering the market. Additionally, rapid advances in AI chip architecture could drastically alter data center power requirements, potentially diminishing demand. These challenges make this investment a high-risk proposition ideal for aggressive investors.
Despite the risks, market leaders trading at deep discounts during industry transitions can provide an exceptional opportunity for risk-tolerant investors. With $11 billion in design wins and Silicon Carbide technology currently playing a critical role in AI and electric vehicles, Wolfspeed presents a once-in-a-decade chance to invest in a dominant player at a fraction of its potential worth, provided management execution succeeds, and the semiconductor industry evolves as anticipated. But achieving success is not guaranteed.
In light of the increasing demand for SiC semiconductors due to the energy efficiency benefits they offer in AI and power-intensive applications, companies like Wolfspeed are investing heavily to expand their manufacturing capacity. For instance, Wolfspeed recently opened the world's largest 200mm SiC manufacturing facility in New York.
Given the significant growth potential of the SiC chip market, with projections of an annual increase of 30% through 2032, investing in companies like Wolfspeed that are at the forefront of this technology can be an attractive proposition for risk-tolerant investors.
