What are the implications of the significant revenue increase at the Mohawk Valley fab for future capacity utilization and potential upside in the company's valuation?
Fundamental take‑away:
The Mohawk Valley fab’s revenue jumped from $41 M to $94.1 M in one year – a 130 % surge that essentially accounts for half of Wolfspeed’s total FY‑25 revenue ($197 M). That leap tells us the plant is moving from a low‑utilization “pilot” phase toward a true volume‑production operation. At the same time the company’s GAAP gross margin improved from a modest positive figure to ‑13 %, while the non‑GAAP margin is now roughly break‑even (‑1 %). The negative GAAP margin reflects heavy start‑up spending (tool depreciation, labor ramp‑up, and higher material loss rates) but the trend is toward a margin‑turning point. Assuming the fab can sustain the current run‑rate, capacity utilization could climb from the low‑30 % range (typical for a new line) to >70 % within the next 12‑18 months, especially as automotive and renewable‑energy customers lock‑in longer‑term SiC wafer purchases.
Valuation and trade implications:
Higher utilization directly expands contribution margin and cash‑flow generation, which the market usually rewards with a 10‑15 % upside in equity value if the plant reaches breakeven on a GAAP basis. In practice, analysts are already pricing a modest “run‑rate” premium into the stock (≈ $22‑$23 per share versus the current ~$21.5 level). A breakout above $24‑$25 would likely trigger a short‑term rally, as it would signal that the market believes the fab is on track to hit ~70 % capacity and that the GAAP margin will turn positive in FY‑26. Conversely, a dip back below $20 would suggest investors are doubting the sustainability of the revenue surge and the firm’s ability to control costs, opening a buying opportunity for risk‑tolerant traders who can hold through the next earnings update.
Actionable signal:
- Long entry on a pull‑back to the $20–$21.5 support zone, with a stop just below $19.5. Target the $24–$25 resistance zone where a 15–20 % upside materializes.
- Momentum filter: Verify that the 20‑day moving average is trending upward and that volume on any bounce is higher than the 20‑day average (a sign of genuine demand for SiC capacity).
- Risk check: Keep an eye on GAAP margin guidance for FY‑26 and any news of capacity constraints (e.g., supply‑chain bottlenecks or wafer‑yield issues). A miss on margin targets would invalidate the upside case and could force a quick exit at the $22–$23 level.