Anticipated Value: One Stock Set to Surpass Wolfspeed's Worth Within a Year
Transformed Article:
Wolfspeed, with a ticker symbol WOLF and currently sitting at 1.58%, once sizzled as a red-hot chip stock. Its innovative silicon carbide chips offered resilience, able to operate at high voltages, temperatures, and frequencies. This made them ideal for various 5G, military, green energy, and EV technologies. However, over the past two years, its stock price plummeted a staggering 90%.
The bulls retreated as interest rates surged, curtailing the expansion of green energy and EV markets. The extra expense for plant growth further strained the chipmaker. Moreover, the tech war led to US sanctions on Chinese silicon carbide devices and China's prohibition on gallium and germanium exports, vital components for chip production.
Confronting this slowdown, Wolfspeed implemented workforce reductions, business restructuring, and reined in its expansion ambitions. In November, the company fired its CEO Gregg Lowe and has yet to find a permanent successor. Analysts still predict a 2% revenue dip in its fiscal 2025 (ending in June), accompanied by a widened net loss.
Given those challenges and the stock trading at 8 times this year's sales, with an enterprise value of $6.2 billion, the idea of investing in Wolfspeed as a turnaround chip play might not be the smartest move. Instead, consider Ambarella, astock ticker AMBA and currently trading at 1.49%.
Ambarella's Focus:
Ambarella specializes in edge AI semiconductor technology, focusing on applications in video security, autonomous driving, and robotics. Its offerings include low-power systems-on-chip (SoCs) providing advanced video and image processing capabilities, particularly in the fields of computer vision and AI processing.
Ambarella's Roadblocks:
Ambarella faced three major hurdles. U.S. regulators restricted the company from selling chips to certain Chinese security camera customers due to national security concerns. Plus, the Internet of Things (IoT) and automotive markets cooled off amid challenging macroeconomic circumstances, and Ambarella faced competition from other chipmakers like Mobileye, Intel's Movidius, and Qualcomm.
Ambarella's Recovery:
Despite these setbacks, Ambarella's revenue grew narrowly (1.7%) in fiscal 2023 and declined by 32.9% in fiscal 2024. However, analysts expect its revenue and adjusted earnings to surge by 23% and 64%, respectively, in fiscal 2025. Leading this growth is its automotive and IoT businesses which have stabilized as interest rates decreased, and a sales mix that emphasizes high-end AI-oriented computer vision chips.
Why Choose Ambarella?
Ambarella's sales of CV3 chips are escalating as automakers re-engage in autonomous driving pursuits, and it's selling an array of AI-oriented CV5 chips to automotive, robotic camera, and consumer markets. Significantly, its exposure to the Chinese security camera market has diminished.
In Ambarella's latest conference call in November, CEO Fermi Wang revealed the company achieved "record levels of AI revenue" which bolstered its higher blended average selling price (ASP). Wang also predicted that the company's automotive and IoT markets would continue to flourish over the next two years, despite the overall market's weakness.
For fiscal 2026, analysts expect Ambarella's revenue and adjusted earnings to grow by 16% and 44%, respectively, as these tailwinds persist. Ambarella, with an enterprise value of $3.1 billion, trades at 10 times next year's projected sales and a forward price-to-earnings ratio of 75. Yet, these valuations may be warranted by the growing demand for computer vision chips in the booming AI market.
Ambarella vs. Wolfspeed:
Wolfspeed's core business confronts severe macroeconomic and regulatory challenges, and analysts' projections for its revenue to soar 46% in fiscal 2026 might be reviewed as the macroeconomic environment warms up. Under such circumstances, Wolfspeed's stock could still experience a 7% decline if revalued to 5 times sales, lowering its enterprise value to approximately $5.8 billion.
Meanwhile, Ambarella may keep its higher valuations as it recovers from its cyclical downturn, with an enterprise value of $3.2 billion. Ambarella's lack of long-term debt provides an added advantage, making it less pricey than its rival Wolfspeed. If the bulls grow more optimistic and are prepared to pay 20 times forward sales, Ambarella's enterprise value could skyrocket to $7.7 billion.
In conclusion, Ambarella may surpass Wolfspeed as its core markets recover and it continues expanding its AI-oriented business. Whether this will transpire remains uncertain, but Ambarella holds greater growth potential and could deliver more substantial gains than the embattled silicon carbide chipmaker over the next 12 months.
After considering the challenging circumstances faced by Wolfspeed, with its stock trading at a high valuation and potential revenue dip in its fiscal 2025, investing in money management may be a safer option. For instance, exploring various finance and investing opportunities could help diversify your portfolio.
Alternatively, Ambarella, with its focus on edge AI semiconductor technology, has shown signs of recovery despite facing hurdles like US regulations and market competition. Analysts predict that Ambarella's revenue and adjusted earnings will surge in fiscal 2025, making it an attractive option for those interested in investing in the technology sector.
