In a standard combustion engine, it takes the power generated by six or eight cylinders firing at a certain rate per second to put the vehicle into motion. In case of an electric engine, that power is generated by the power transistors firing at a very high speed, say 10,000 times per second. Wolfspeed’s aim is to improve the efficiency of such chips.
Cree, Inc. Price and Consensus
What Does this Mean for Cree?
As per an insideevs.com report, electric vehicles are projected to comprise 7% of the global automotive landscape by 2020. As per another report by Morgan Stanley, the percentage is expected to inch up another 3% to 8% by 2025, taking the total percentage share of electric vehicles to 10% to 15%. Given the fact that oil prices are on the rise again, the market share for electric vehicles is likely to gain traction in the coming years, which translates to greater demand for these chips.
Notably, although Ford has remained the primary research partner for the project, the technology has been tested by other automobile manufacturers. This indicates a growing interest for Wolfspeed’s technology, which augurs well for the company in the long run.
Also, the transistor has its applications in industrial motors as well, such as air conditioner pumps and robotics. This could have a positive impact on Cree’s bottom line in the years to come.
However, we note that Wolfspeed is currently in the process of a pending buyout by Infineon Technologies IFNNY for $850 million, which could further boost its technological capabilities with respect to electric vehicles. This could help Cree to focus more on its primary source of revenue, the LED segment.
Stock Performance Overview
Shares of Cree have underperformed the broader Zacks Semiconductor – Discretes industry over the last one year. While the broader industry generated a positive return of 32.4%, Cree generated only 13.5%.
The underperformance of the stock could be due to demand for mid-powered chips manufactured by the competitors as well as the availability of similarly priced bulbs in the consumer lighting segment.
However, growing demand for LED products, recovery in utilization rates and continued cost cutting measures from the company’s end are likely factors that buoyed the share price and continue to do so.
At present, Cree has a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology space is Acacia Communications, Inc. ACIA, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, the consensus estimate for Acacia’s current year has improved to $2.33 from $2.31 over the last 60 days.
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