We recently published a list of 10 Best Tech Stocks to Invest In On the Dip. In this article, we are going to take a look at where Wolfspeed, Inc. (NYSE:WOLF) stands against other best tech stocks to invest in on the dip.
How’s The Tech Sector Performing in Q3 2024?
Dan Romanoff, a senior equity research analyst at Morningstar provided insights into the current state of the technology sector, on October 1st, 2024. His analysis highlights significant challenges and opportunities for the industry. Romanoff mentioned that after a robust start to 2024, the tech sector experienced a slump in the third quarter. Despite this downturn, software and services companies have continued to report solid quarterly results, even as their stock prices have remained relatively flat. Semiconductor firms, while showing potential for recovery, are currently dragging down overall sector performance.
While discussing the sector-wise ranking of the US stock market based on the Q3 earning season, Romanoff pointed out that the technology sector has been the second-best-performing sector over the past year but ranks as the second-worst performer in the most recent quarter. Romanoff emphasizes that despite these fluctuations, there are positive long-term trends that could benefit the industry. He expressed confidence in several long-term growth drivers within technology, including cloud computing, artificial intelligence, and the expansion of semiconductor demand. He mentioned that these factors are expected to sustain growth in the sector even amidst short-term challenges.
Moreover, according to Romanoff, the Morningstar US Technology Index has risen by 32% over the past twelve months, outperforming the broader US equity market’s 24% gain. He notes that while the median US technology stock is fairly valued with a modest margin of safety, the sector trades at a slight premium on a market-weighted basis. He identifies semiconductors and hardware as being overvalued compared to software, which appears more attractive at present.
READ ALSO: 10 Best Small-Cap Stocks Ready To Explode and 10 Cheap NASDAQ Stocks To Invest In Now.
Romanoff also pointed out that generative AI is a significant force within technology. Companies are increasingly integrating next-generation AI capabilities into their products and services. This trend is particularly evident among cloud providers and semiconductor manufacturers. Despite some recent stock pullbacks for Nvidia, Romanoff believes there are still substantial investment opportunities in generative AI beyond just major players. He mentioned that he sees 34% growth in Gen AI Networking equipment spending through 2028. Romanoff also pointed out that the usage of chips and networking gear has grown together from 2022 to 2024 and he expects the trend to continue till 2028.
Our Methodology
To curate the list of the 10 best tech stocks to invest in on the dip, we used the Finviz stock screener and CNN. Using the screener we shortlisted technology stocks that were down at least 25% on a year-t0-date basis, but analysts see a more than 25% upside. Once we had an aggregated list of the tech stocks fitting our criteria, next we cross-checked their analyst upside potential from CNN. Lastly, we ranked these stocks in the ascending order of the analyst upside potential. Please note that the data was collected on November 25, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A worker assembling metal oxide semiconductor field effect transistors (MOSFETs) on a conveyer belt.
Wolfspeed, Inc. (NYSE:WOLF)
Share Price: $9.74
Year-To-Date Performance: -77.47%
Analyst Upside Potential: 28.21%
Wolfspeed, Inc. (NYSE:WOLF) is a leading company in the semiconductor industry, specializing in wide bandgap semiconductors. These materials, particularly silicon carbide (SiC) and gallium nitride (GaN), are essential for various power applications due to their efficiency and performance advantages over traditional silicon-based components. It is one of the best tech stocks to invest in on the dip.
Wolfspeed, Inc. (NYSE:WOLF) opened the world’s largest 200mm silicon carbide plant in upstate New York in 2022 as management believes silicon carbide chips will disrupt the traditional silicon chips. The stock was doing well in a low interest rate environment and with the EV market running hot. However, as the interest rates rose and the EV market cooled down its stock took a hit and has been down by around 77% on a year-to-date basis.
During the first quarter of fiscal 2025 as well, the company reported significant steps towards its business expansion. The company targets generating approximately $3 billion in annual revenue from its new 200mm silicon carbide manufacturing footprint at facilities in Mohawk Valley, New York, and North Carolina.
It also signed a preliminary memorandum for up to $750 million in direct funding under the CHIPS and Science Act, along with an additional $750 million from a consortium of lenders. This brings the total potential funding to $2.5 billion, which will facilitate their expansion plans in the US.
In the first quarter, Wolfspeed reported a remarkable 2.5 times year-over-year growth in its automotive sector. The number of car models utilizing Wolfspeed’s silicon carbide solutions has quadrupled from 2023 to 2024, with expectations of a further 75% increase in 2025.
ClearBridge Growth Strategy stated the following regarding Wolfspeed, Inc. (NYSE:WOLF) in its Q3 2024 investor letter:
“We exited long-time holding Wolfspeed, Inc. (NYSE:WOLF), a leading global supplier of silicon carbide substrate wafers and devices. After giving management ample time to ramp production at its new Mohawk Valley facility, we closed the position due to continued execution missteps and cyclical headwinds impacting electric vehicle, industrial and energy applications that have repeatedly pushed the company’s path to profitability further out.”
Overall, WOLF ranks 10th on our list of best tech stocks to invest in on the dip. While we acknowledge the potential of WOLF to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WOLF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
