Why Wolfspeed Stock Is Skyrocketing Today

Key Points

• Wolfspeed's stock reacted positively to a new U.S.-Japan trade deal.

• This agreement could benefit Wolfspeed by strengthening ties with a key Japanese chip manufacturer and boosting the electric vehicle market, a major revenue source.

• 10 stocks we like better than Wolfspeed ›

Shares of Wolfspeed (NYSE: WOLF) are jumping on Wednesday, up 23.6% as of 3:02 p.m. ET. The rise comes as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 0.6% and 0.5%, respectively.

The embattled chipmaker's stock was flying higher today in part by a U.S. trade deal reached with Japan, a country with which Wolfspeed has significant ties.

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U.S. strikes trade deal with Japan

President Trump announced yesterday that his administration had reached a "massive" trade deal with Japan that will see tariffs on Japanese goods in the U.S. reduced to 15%. Critically, auto tariffs were reduced from 25% to 15%. Japan will also invest $550 billion in the U.S. and will open its markets to U.S. goods, including cars, trucks, and agricultural products.

Image source: Getty Images.

Wolfspeed has significant direct business with a chip manufacturer in Japan. The lowering of trade barriers can help strengthen this tie. On top of that, increased automotive trade will help the struggling electric vehicle (EV) market, the primary driver of Wolfspeed's sales.

It's a critical time for Wolfspeed

Late last month, Wolfspeed filed for Chapter 11 bankruptcy. It will continue to operate as it restructures its debt and transforms operations. When it emerges from bankruptcy, Wolfspeed expects to have reduced its debt by 70% and its interest payments by 60%, giving the company some breathing room.

For investors with a high risk tolerance, this could be an interesting turnaround play. For most, however, I would avoid this struggling company's stock.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool recommends Wolfspeed. The Motley Fool has a disclosure policy.