WHAT TO DO NOW: The market has been doing fairly well of late, so much so that our Cabot Tides are on the verge of a green light. That said, individual stocks remain hit or miss at best; we had one gap up strongly yesterday, but today, Wolfspeed (WOLF) is disintegrating after earnings—we’re forced to sell our half-sized position today. Details below—and we’ll have far more in tonight’s regular update.
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The market is off to a mixed start today.
From a top-down perspective, the market has actually been perking up nicely—not so much setting the world on fire, but resisting downside amidst a wave of bad news, and lately pushing higher. Our Cabot Tides are actually on the verge of a buy signal, though we’d note our Growth Tides aren’t quite there yet. We’ll have more about our thoughts on that in tonight’s “full” update.
However, today’s message isn’t about the market, it’s about Wolfspeed (WOLF), which was acting well enough heading into earnings, but is getting taken apart today after poor guidance. Frankly, demand for its chips remains better than expected; design-ins of $3.5 billion came in six-fold ahead of last year’s total and trounced last quarter’s record figure of $2.6 billion. We wouldn’t be surprised if, at its investor day next Monday, the company ups its long-term revenue guidance.
The problem? Execution—simply put, it was awful, with both capacity limitations and yields at its plants falling way behind plan, resulting in a cut to guidance for the next couple of quarters. And, given the expansion plans, the top brass certainly hinted that money would need to be raised (near-term, likely to be non-dilutive, but who knows) in the months ahead as it builds out capacity.
Whatever the exact reasons, WOLF is imploding today, forcing us to cut bait on our half-sized position. As always, if you want to sell some/hold some and see if the stock can rebound, that’s fine, but it’s clear that the solid underlying demand story hit a major pothole due to poor execution. SELL
We’ll have further updates on WOLF, our other holdings, the market and an expanded watch list in tonight’s regular update. Don’t hesitate to email me directly at mike@cabotwealth.com with any questions in the meantime.
