Behind the Downgrade: What JP Morgan's Move Signals for Wolfspeed's Future

Silicon carbide technology specialist Wolfspeed, Inc. (WOLF) has been dealt a significant blow as JP Morgan, one of Wall Street’s most influential investment banks, downgraded the stock from Neutral to Underweight. This action, announced during a period of severe price weakness for Wolfspeed, puts a new spotlight on the company’s mounting operational and market challenges. For investors seeking alpha, understanding the drivers behind such a decisive analyst move—and how it aligns with Wolfspeed’s sudden 28% stock collapse—could be critical to managing risk and opportunity in the volatile semiconductor sector.

Key Takeaways:

• JP Morgan issued a rare Underweight rating for Wolfspeed, signaling strong skepticism about the company’s near- to medium-term prospects even after a precipitous 28% single-day drop in price.

• Wolfspeed’s stock has collapsed by 28% intraday, now trading at $3.17, down from a previous close of $4.43, with massive trading volume and volatility.

• Recent news underscores acute uncertainty: The company’s access to $750 million in CHIPS Act funding is in doubt amid changing U.S. political winds, while Board shake-ups continue.

• Over the past year, Wolfspeed has suffered a brutal decline, plunging from a high of $30.86 to today’s low near $3.17, with sentiment and technicals pointing to sustained downward pressure.

• JP Morgan’s downgrade carries significant weight due to its market reputation, sector expertise, and its timing—coming at a moment of acute price stress and public funding controversy.

The Analyst Downgrade in Context

Why JP Morgan’s Move Matters

JP Morgan’s downgrade of Wolfspeed is more than a routine analyst adjustment. As a top-tier global investment bank with deep semiconductor sector experience, JP Morgan’s shift to Underweight is a public vote of no confidence. The Underweight rating, especially following a dramatic price collapse, suggests that the firm sees further downside risk despite the already drastic sell-off. Investors should note that, unlike a Neutral rating, Underweight implies expectations of underperformance versus sector peers and market benchmarks.

JP Morgan’s analysts have historically been trendsetters in institutional sentiment, often prompting additional downgrades or selling pressure across the market. This downgrade is likely to reverberate among both institutional and retail holders, amplifying volatility.

The Weight of JP Morgan’s Call

JP Morgan brings considerable analytical firepower and industry access. Their semiconductor analysts have a history of prescient calls, and their research is closely watched by both buy-side and sell-side market participants. The timing of today’s downgrade—on the heels of a 28% price collapse and amid headline risk over government funding—suggests a well-calibrated move, reinforcing the perception that Wolfspeed’s fundamental risks are not yet fully priced in.

Wolfspeed at a Crossroads: Stock and Financial Performance

One-Year Performance Tells a Cautionary Tale

Wolfspeed’s stock narrative over the past year is nothing short of catastrophic. The shares have cratered from a 52-week high of $30.86 to today’s $3.17—an over 89% drawdown. Sentiment data paints a bleak picture: there have been 137 down days versus 111 up days, and the sentiment ratio stands at a bearish 0.45.

Technical indicators reinforce this negative bias. The current 20-day EMA is $3.58, with the price now trading well below both its simple and exponential moving averages. The daily average volatility is nearly 1%, with today’s session marking one of the sharpest drops on record for the ticker. Volumes have surged to over 20 million shares traded intraday, reflecting panic selling and possibly forced liquidations.

Recent News Flow: Compounding the Pain

The past month has brought an onslaught of negative headlines:

• CHIPS Act Funding in Jeopardy: Barron’s reports that Wolfspeed’s anticipated $750 million federal grant is now at risk, with political uncertainty looming large as U.S. policy priorities shift (Barrons). This creates a funding gap at a time when Wolfspeed needs capital for both R&D and manufacturing expansion.

• Boardroom Changes: The company announced the appointment of two new directors to its Board, signaling potential governance reforms (Business Wire). While these moves could eventually strengthen oversight, such reshuffling often follows strategic or operational distress.

• Negative Momentum in Broader Markets: Even as Nasdaq futures rose, Wolfspeed was prominently listed among the day’s biggest pre-market decliners (Benzinga).

Technicals, Sentiment, and the Path Forward

Trading Action: Panic and Capitulation

Today’s 28% single-session drop is not only a function of bearish news but also a technical breakdown. The price sliced through key support levels, triggering algorithmic and discretionary selling. The stock’s Relative Strength Index (RSI) remains above 56, suggesting that—despite the huge price drop—there is not yet an oversold signal typically associated with short-term bottoms. This is a red flag for those hoping for a technical bounce.

Volume and Volatility: Unprecedented Surge

Intraday volume of over 20 million shares dwarfs the average daily volume (14.5 million), indicating a rush for the exits. The average daily volatility has spiked to nearly 1%, and today’s session easily exceeds that norm. This combination of high volume and high volatility is often seen in the final stages of a bear market move—but, given the downgrade, could also mark the beginning of a new leg lower.

The Sector Backdrop: Silicon Carbide’s Boom and Bust Cycle

Wolfspeed has positioned itself as a leader in silicon carbide (SiC) semiconductor solutions, aiming to supply the next generation of power electronics for electric vehicles, industrial equipment, and renewable energy infrastructure. The SiC market has been a rare bright spot in the semiconductor space, attracting government support and investor capital. However, as Wolfspeed’s recent experience demonstrates, the sector is highly capital-intensive and exposed to both policy risk and rapid technological shifts.

The Downgrade: Analyst Confidence and Broader Implications

JP Morgan’s downgrade is particularly notable for its timing and decisiveness. It comes at a moment of extreme market stress, and the firm’s sector expertise means this is not a knee-jerk reaction but a well-considered call. The lack of a specified new price target underscores the uncertainty surrounding Wolfspeed’s outlook—analysts may be unwilling to anchor expectations while the company’s access to critical funding remains so unclear.

"The problem is that it was promised $750 million from the government under Joe Biden's CHIPS Act, but receiving it may be a problem as President Donald Trump tries to undo his predecessor's work."

– Barron's, May 9, 2025

This policy uncertainty, combined with operational execution risks and a collapsing share price, means that many institutional investors may continue to avoid or actively short the name.

Where Next for Wolfspeed?

Key Risks

• Funding Uncertainty: The CHIPS Act grant is crucial for Wolfspeed’s growth strategy. Losing access to these funds would force the company to either seek expensive private capital or scale back plans at a time when scale is crucial.

• Sector Competition: Larger, better-capitalized rivals may seize market share in the event of Wolfspeed’s operational or financial stumbles.

• Potential for Further Downgrades: JP Morgan’s move could set the stage for additional analyst downgrades, driving further negative sentiment and pressure on the stock.

Is There a Contrarian Opportunity?

While the technicals and fundamentals are deeply negative, sophisticated investors often search for capitulation bottoms in high-volatility names. However, with no clear price target and a downgrade by a leading analyst, the risk/reward remains skewed to the downside for now. Investors should watch for stabilization in funding news, insider buying, or strategic partnerships as early signs of recovery.

Conclusion: Analyst Downgrades as a Critical Signal

Wolfspeed’s experience this week is a textbook example of why analyst downgrades deserve close attention—especially when issued by firms with deep sector knowledge at moments of maximum market stress. JP Morgan’s Underweight call, combined with a catastrophic price decline and serious policy risks, marks this as a watershed moment for Wolfspeed. For investors, the message is clear: caution is warranted, and the search for a bottom may not be over just yet.