Why do we need more chips?

Sam Altman wants $7 trillion for his new startup manufacturing semiconductor chips for AI! These chips power GPUs to train large language models behind AI systems like ChatGPT.

We are currently facing a shortage of GPU chips given the large surge in demand, long lead times, and high capital costs with building new fabrication plants.

Just a few years ago, we faced similar issues with semiconductor chips for batteries used in Electric Vehicles. EVs need a specific semiconductor chip made from Silicon Carbide (SiC) which is known to efficiently manage high voltages and temperatures.

During the EV surge in 2021 and 2022, SiC semiconductor manufacturers found difficulty meeting the demands of automakers as they rushed to implement their EV strategy.

However, the EV industry has faced recent headwinds including unreliable charging networks and limited federal tax credits. For example, the German government decided to terminate a seven-year subsidy program for new EV buyers, which provided up to €6,750.

Multiple automakers including General Motors, Ford, and Volkswagen have all revised down their EV production schedule.

WolfSpeed (WOLF) is a manufacturer of SiC chips that saw a surge in demand throughout 2021 and 2022, but has recently come crashing down amidst the recent EV turmoil.

However, despite the recent turmoil, we saw 3 sizeable insider purchases by board members over the last week.

• Darren Jackson (Director since May 2016)

  • Purchased $257k shares at $25.80 on 2/2/2024

  • Marks his first purchase in WOLF since 10/24/2016 at a share price of $22.85

• John Replogle (Director since Jan 2014)

  • Purchased $260k shares at $26.04 on 2/2/2024

  • Purchased on 4/2023 at $47.54 and 5/2022 at $67.65

• Stacy Smith (Director since Jan 2023)

  • First purchase of $249k at $26.35 on 2/2/2024

Given the recent drop in share price, the board directors may think slower growth is already priced in. In addition, WOLF has some exciting developments on the horizon.

WOLF recently opened the world’s largest SiC fabrication facility in Mohawk Valley in 2022 which is poised to accelerate ramp in 2024. The Mohawk Valley fab is expected to reduce manufacturing costs by a full 50% and boost gross margins accordingly.

At full capacity, the Mohawk fab will generate $2 billion in annual sales in 2027.

What do you think? Would you invest in WOLF? Why or why not? Let me know!

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