BrainChip shares are down >50% in the past year – where is this company at?

BrainChip shares have had a difficult 12 months.

This company has one of the most promising and exciting technologies of any ASX stock. But how close is it to seeing the light of day?

 

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Who is BrainChip?

BrainChip develops software and hardware solutions for artificial intelligence (AI) and machine learning applications.

The company’s key product is the Akida Neuromorphic Processor, which is in essence a Spiking Neural Network (SNN).

It provides ultra-low power and fast AI (artificial intelligence) Edge computing solutions without the need for a continuous internet connection.

Additionally, unsupervised learning capabilities and on-chip processing (rather than in the Cloud) set Akida apart from other AI solutions on the market.

Akida can be used in a range of applications, like vision and audio, which in turn are used in a wide variety of industries, such as automotive, robotics, aerospace and cybersecurity to name just a few.

 

BrainChip shares undergo a spectacular rise and fall

After the Corona Crash in 2020, BrainChip shares went on a spectacular run over the following couple of years.

Obviously BrainChip shares benefited from the bull market for tech and AI stocks generally. But the company announced several development milestones and agreements, most notably with NASA.

And it entered the key market indices, first the ASX 300 and then the ASX 200 – both of which triggered mandatory institutional buying.

After BRN’s exponential growth in 2020 and 2021, the share price started a correction in line with the rest of the tech sector as the enthusiasm for speculative tech stocks started to wane due to fast rising interest rates.

Investors who bought too high, as well as those who thought the initial decline presented an opportunity to buy the stock at lower levels, were all burnt.

 

 

What next?

So where to from here for BrainChip shares? It is difficult to determine in the short term because there are several arguments for either direction.

Let’s start with the arguments for growth.

Many of the reasons that made BrainChip attractive in the tech boom are still in place.

There are still chip shortages and car manufacturers still need the relevant semiconductor IP and the actual chips to give them an advantage over their competitors.

There are now a number of tier 1 companies testing the utility of BrainChip’s Akida AI processor kits for their respective applications, which increases the chances of getting some good news flow any time in the following months.

Importantly, BrainChip’s technology has kept showing more and more promise by successfully passing product development milestones. No doubt, more will come in 2023.

And finally, it is developing a new generation of Akida that will provide even better performance and support more complex AI computation.

Now to the arguments against BrainChip shares.

Notwithstanding the strides the company has made, it is not only pre-profitability but pre-commercialisation.

Granted, it has US$23.1m in the bank and isn’t burning cash that fast relative to its cash balance – it burnt US$1.9m in the December quarter – but it still may not be enough to see it to self-sustaining commercialisation.

And finally, as we’ve seen with other tech stocks in the last 12 months, announcing another patent or non-binding MoU won’t take individual stocks too far anymore.

Investors are more interested in profitable companies, particularly those that can thrive in a high-inflation environment and have a high degree of pricing power in respect of its suppliers and customers.

 

Thinking of buying BrainChip shares? Your best bet is to wait until commercialisation

The recent example of BluGlass (ASX:BLG) depicts that pre-commercialisation tech stocks can re-rate once they enter full commercialisation (directly selling to customers) even in the current equity market environment.

We think investors thinking of buying BrainChip shares should wait at least until it is clearer when larger-scale commercialisation will be.

 

Disclosure: Pitt Street Research/Stocks Down Under directors/staff own shares in BRN.

 

 

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