In the ever-shifting landscape of the stock market, the competition between Wolfspeed and Plug Power has become a hot topic among investors. Both companies are currently considered speculative investments as they strive to rejuvenate their operations and regain financial footing.
Wolfspeed (ticker: WOLF) and Plug Power (ticker: PLUG) have ambitious expansion plans, yet both face challenges reflected in their negative gross margins. Notably, Wolfspeed emerged from bankruptcy earlier this year, while Plug Power has been teetering on the brink of bankruptcy for several years.
Let’s take a closer look at which of these two stocks might have the upper hand by 2026.
The Case for Wolfspeed
Recently, Wolfspeed saw a modest uptick of 2.68%, bringing its current stock price to $18.37. The company’s choice to undergo a prepackaged bankruptcy was drastic, but it successfully wiped out a significant portion of its old shareholder liabilities. This move greatly improved its financial situation, slashing its debt by an impressive 70% and lowering its cash interest expenses by about 60%.
However, despite these gains, Wolfspeed still faces substantial hurdles. The company has heavily invested in silicon carbide technology—a material that outperforms traditional silicon chips, especially in electric vehicles (EVs) where it enables faster charging and longer driving ranges. Significant investments into their John Palmour Materials facility in North Carolina, alongside a semiconductor fabrication plant in New York, illustrate their commitment. Yet, manufacturing silicon carbide chips has proven to be quite challenging; their transition to larger 200mm wafers has not yielded the expected results due to high defect rates and low yields.
This has resulted in underutilized manufacturing capabilities and negative gross margins, with their adjusted gross margin sinking to a troubling -26% in the third quarter. They also reported $98.3 million in negative free cash flow, although they did generate $5.7 million in operating cash flow. Looking ahead, capital expenditures are expected to decrease significantly now that the facilities are mostly constructed.
For Wolfspeed, the primary objective moving forward is to enhance yield rates and improve utilization levels. Achieving this could resolve many of its current challenges.
The Case for Plug Power
On the other hand, Plug Power experienced a decline of 2.65%, leaving its stock priced at $2.20. Traditionally, Plug Power's main business has centered around providing fuel cell systems utilized in forklifts and other material handling equipment, primarily in high-demand warehouses and distribution centers. Additionally, they supply hydrogen fuel necessary for powering these cells. The crux of their issue lies in the fact that they have often sold hydrogen fuel at prices lower than the cost of distribution, resulting in negative gross margins and significant cash outflows.
Recognizing the unsustainability of this model, Plug Power has shifted towards becoming a comprehensive hydrogen solutions provider. They are in the process of establishing a network of hydrogen production plants, which would allow them to produce fuel profitably. Although a few plants are operational, they have yet to scale sufficiently to meet customer demands, continuing to face negative gross margins.
In their latest quarterly report, Plug Power disclosed an adjusted gross profit loss of $37 million. Nevertheless, management is optimistic about reaching breakeven on gross margins by mid-next year, aided by increased hydrogen production, price adjustments, and their ongoing Project Quantum Leap restructuring initiative.
Additionally, Plug Power has started exploring opportunities within the data center sector. Recently, they sold electricity rights in New York and another location to a data center developer, providing them with cash and positioning themselves as a potential backup power source for future developments. Ultimately, they aspire to emerge as a primary energy supplier in this industry.
The Conclusion
Both Wolfspeed and Plug Power are currently viewed as highly speculative investments, each with a myriad of challenges to address. However, upon careful consideration, Wolfspeed presents a more compelling narrative and is poised to benefit from a new management team focused on resolving its yield issues. While Plug Power shows promise, it has a history of overpromising, and its incoming CEO has been with the company for an extended period.
Thus, I believe that Wolfspeed stands a better chance of outperforming the competition by 2026.
But what do you think? Are you leaning toward one stock over the other? Could Plug Power surprise us all with a comeback? Share your thoughts in the comments!
