Can Wolfspeed and Cliffs Reshape Their Valuations Through Defense Financing?

Me again. If you're new, go read the post on WOLF and CLF first.

Let's pre-empt the peanut gallery: there has been enormous volatility due to wars, the great Leo margin call, interest rate and inflation terrors and oil & diesel armageddon. This has nothing to do with the thesis and if you are patient and got balls this is how you make money. My thesis is correct and this is what happens next.

In June I said the government was going to put 1.5 BILLION into Wolfspeed. I pointed to the indenture covenants where the 1L noteholders agreed to let a federal lender take first priority on Siler City.

On October 7, the Department of War's Office of Strategic Capital announced a conditional $1.5B, 30-year loan commitment to Wolfspeed.

WHERE I FUCKED UP (AGAIN, IN THE BEST WAY)

I said DoE plus CHIPS. It's the Department of War. THAT IS EVEN BETTER.

THE BORING SHIT (read the 8-K yourself if you are an autist as well)

WOLF gets up to $1.5B in up to four tranches, available over a 30 year window.

$600M refinances the 1L senior secured notes due 2030 in full. Those are the expensive notes I told you were bleeding this company dry. The interest rate is UST plus 1.25-1.75%.

Then there are some other tranches of debt that open based on some milestones and investments that I will explain later.

In exchange, the Department of War gets warrants for up to 7.5% of the company. It can also name a non-voting board observer. The company has to keep its HQ in the US, and a majority of the board has to be US citizens blah blah blah.

THE PART I DIDN'T SEE COMING: THIS ISN'T AN AI DEAL. IT'S AN AI & WEAPONS DEAL.

I was focused on 800V data centers and solid-state transformers (SSTs) based on the DPA from April which named power control electronics and other supply chains for grid resilience as strategic priorities. What I didn't see coming was FUCKING SPACE WEAPONS. Read what the Pentagon says the money is for. Per TNW's summary of the DoW release, it lists:

Propulsion systems, directed energy weapons, drones, electronic warfare, radar and missile defense.

Investments will be made into upgrading GaN epitaxy for electronic warfare, onshoring GaN power devices, building GaN-on-SiC RF wafers, and radiation-hardening SiC and GaN. Rad-hard means space and nuclear.

This is a list of things that are no longer commodity consumer auto parts and soon Wolfspeed will start to trade like a defense prime. I admit I was a bit caught off guard by all of this and wanted to take a couple of days to process but NOW IT ALL MAKES SENSE.

Go back to the GE Aerospace MOU from June 8. Wolfspeed supplies its 10kV MOSFET die, and the two companies co-develop high-voltage module standards for SSTs and next-gen aerospace & defense platforms. GE had already qualified high-voltage SiC power units for US military ground vehicles.

That MOU now makes sense. GE is the first prime-side customer, and the DoW loan is the government-side financing. I expect other primes to follow soon.

THE CLAUSE NOBODY READ PART 2

Last time it was Section 8.02. This time it's the conditions precedent in the 8-K.

To sign definitive agreements, Wolfspeed must execute "one or more letters of intent or definitive offtake agreements"that OSC accepts. Every tranche after the first is also conditioned on offtake agreements. The DoW additionally gets certain rights on products related to the project.

Translation: the Pentagon won't fund the remaining $900M until someone signs up to buy the output.

NOW LETS LOOK AT EXACTLY WHAT THE PLAYBOOK IS THAT THIS ADMIN HAS USED BEFORE

MP (July 2025): DoD took a 15% stake, signed a 10-year offtake for 100% of the 10X magnet facility, and set a $110/kg NdPr price floor. THEN, Apple signed a massive offtake agreement. The stock went up 50% that week.

Intel (August 2025): the government took a 10% equity stake & then they started to gain commercial momentum as onshoring became the in vogue thing to do. Stock is up ~4x from it's lows.

Wolfspeed (October 2026): a loan plus warrants, with offtake required as a condition. WHAT DO YOU THINK HAPPENS NEXT ANON????

MP's sequence was equity, then offtake, then a price floor. Wolfspeed has the equity-like piece (warrants) and the capital.

My call is that the offtake comes from the DoW directly, the DoE directly, from a defense prime, or from some sort of combination. GE has already dipped it's toe. I don't know which or when. I do know the deal can't close without it.

WHY THIS RE-RATES THE STOCK

Today the market values WOLF like a broken, recently-and-soon-to-be-again bankrupt commodity cyclical auto-parts supplier. Pretty much the lowest multiple shitco stock valuation possible in capital markets.

Once there is a 30-year Pentagon lender, a government warrant holder, a board observer, and contracted defense offtake, it stops looking like a cyclical. It looks like a sole-source defense supplier and a strategic and critical supplier to sensitive American supply chains for THE MOST IMPORTANT INDUSTRIES IN THE AMERICAN ECONOMY (GUNS & AI)

CLF UPDATE: THE OTHER HALF OF THE APRIL DPA

Recall that the Presidential Determination named "power control electronics" (WOLF) and "electrical core steel" (CLF).

Cliffs announced a sole-source, up to $400M GOES contract with the Defense Logistics Agency. It's a five-year deal for the Army, Navy, Air Force, Marines and Space Force. Goncalves has said the government stockpiles this stuff. That is literally a defense offtake for transformer steel.

On October 6, Energy Secretary Chris Wright and Commerce Under Secretary Kimmitt toured Butler Works. The visit showcased the $200M GOES expansion, backed by a $75M DOE award, that raises GOES output by up to 25%. Butler is the only US GOES producer.

Cabinet secretaries don't fly to Butler, PA (where tf even is that???) to look at furnaces for fun. CLF already has a defense stockpile contract. My guess at the next step is a DPA Title III award or long-term offtake with transformer OEMs. SAME PLAYBOOK.

THE BIG PICTURE: POWER IS THE WHOLE TRADE NOW

The "bottleneck" (sorry if this word gives you PTSD) has gotten worse since I posted.

Substation transformer lead times are now over 160 weeks. Interconnection queues are the binding constraint on data center builds, so everyone is going BTM for power. This is already priced into these names (see BE, GEV and co.)

Every dollar of AI capex guidance assumes those GPUs get power. Hyperscalers, utilities, and the government, and every major GPU and Memory company are all incentivized to get power online. There are only two ways to do it:

BTM generation plus more transformers. That's GOES/CLF.

FAST TRACK SSTs. SSTs handle power flowing both ways and make BTM integration easier. Rosendin says SSTs plus medium-voltage UPS can eliminate up to two-thirds of conversion steps. That's WOLF.

The market is schizo right now. The AI trade could blow up, Iran could blow up, something unforeseen could blow up. I don't see the entire future but I have weaponized my autism directly at understanding the admin's strategic investment initiatives and I AM TELLING YOU WHAT THEY WILL DO.

POSITIONS: 3k WOLF Shares, 1k CLF Shares, various call option contracts on both.

I have traded positions around big market moves (didn't get these all right) but have upped my core position in both of these names because I am correct. Positions across various accounts but I will show some in comments.

Good luck fellow regards.