A little-known chipmaker is getting buzz as the market's newest meme stock after a 79% surge
The move: Wolfspeed stock rose as much as 46% on Tuesday, hitting a high of $32.26 early in the session. The gains extended its rally to as much as 79% in the last two days.
Why: On Monday, Wolfspeed announced that it had successfully exited Chapter 11 bankruptcy protection and completed a restructuring process.
As part of that process, the company reported lowering its total debt by roughly 70% and its annual cash interest expense by approximately 60%.
However, most importantly for shareholders, Wolfspeed also issued new stock as part of its restructuring, cancelling all existing shares and issuing current investors a small fraction of the new common stock.
The new stock, listed under the same ticker, began trading on Monday at $18 a share. As of Tuesday morning, some data is still calculating the gain from Friday’s closing price of $1.21, reflecting a rise of more than 2,500%.
The restructuring is a reminder of a painful reality for shareholders in bankruptcy situations, namely that they get paid back dead last, if at all, once money has gone toward paying back creditors. Existing shareholders only received a tiny fraction of the new stock.
Still, at least for now, investors are buying in.
“This was very dilutive to the existing shareholders,” Alexander Wah, CIO of hedge fund Prince Capital, told Business Insider. “But it seems people are buying back into the business because they see the newly, less-burdened future as attractive and believe that it can be the leading provider of the essential silicon carbide semiconductors .”
What it means: The company, which makes chips for applications in technologies including electric vehicles and solar power, could be the latest meme stock if chatter online is any indication.
Data from Stocktwits shows that the messaging volume around the stock is extremely high while sentiment is bullish. Mentions of Wolspeed stock on Reddit have surged more than 1,400%, sentiment tracker Ape Wisdom shows.
Even though holders of the old common stock saw their shares canceled out, traders online might be targeting the stock as a post-bankruptcy comeback story.
Marcus Sturdivant Sr., managing member of financial advisory firm The ABC Squared, thinks that if the company can demonstrate success after its emergence from bankruptcy, some of the momentum could prove sustainable.
“They are set up for success if they can execute the proposed plan and gain market share from industry leaders,” he said.
As part of the new business plan, the company has also appointed five new members to its board, including a top executive from chip maker Micron Technology.