2021 BRN Discussion, page-32921

Brainchip (ASX: BRN) Shareholders Are Buying The Dream

In recent weeks we’ve seen perhaps the most heavily hyped share price action I’ve ever witnessed on the ASX, in a company called Brainchip (ASX: BRN). Brainchip supposedly has technology that will allow the manufacture of better computer chips. Even more incredible, it has achieved this with very little spending, having only allocated about $3.5m to R&D in the last half year up from just $1.5m in the prior corresponding period.

It’s not exactly clear how Brainchip has snared the semi-conductor engineering talent to pull off this feat, or indeed who they are. If they have turned a few millions of R&D into hundreds of millions of value, I would have thought they’d receive employment offers from the likes of Nvidia, IBM, AMD and the other gigantic semiconductor companies.

That’s because the companies that make microchips measure their R&D spend in billions, not millions. For example, back in 2015, IBM said it would spend $3b over five years on developing the future generations of microprocessors that it thinks will replace silicon microchips. “Beyond that,” wrote Wired, “IBM is also investing in brand new ways of number-crunching—quantum computing, or Neurosynaptic chips – that use computing models that go beyond the digital computing paradigm that has dominated the tech industry for fifty years.”

Brainchip doesn’t have much revenue or customers to speak of, having booked just $13,397 from an unknown customer for “development service revenue,” in the six months to June 2020. That’s less than a month’s pay for a single top tier data scientist or software engineer.

I’m not sure how many actual prototypes Brainchip has built, but I do know that punters pushed the market capitalisation to over $1.3b at its Brainchip share price peak of 97c. I’ll leave it to the reader to decide whether that is ludicrous or not, but one thing I am certain of is that Brainchip is perhaps the most aggressively promoted stock I have ever come across.

You see, social media has increasingly become a free, high traffic, low value method for — wait for it — not just idea generation but actual stock research. Now, this might make a lot of sense if you’re observing, for example, customers of an online retailer like Kogan (ASX: KGN) or even a direct to consumer BNPL company like Afterpay (ASX: APT). But it is a pretty strange resource for understanding a highly technical subject matter like neuromorphic computer chips.

But the discussion of Brainchip definitely goes beyond the usual ticker + rocket emoji format developed years ago on twitter by cryptocurrency fanatics. There are multiple entire groups dedicated to singing the praises of Brainchip and keeping the dream about its amazing fundamental potential alive. You can see an example below:
On top of that, Brainchip holders make it explicitly clear that they think that this near-zero revenue company may well be the next FAANG stock. The tweet below is a response I received when I warned the stock was hyped. The high expectations show how strong, and beautiful the dream for this company is. But the tweet also shows the dream’s fragility; anyone who questions it must be an inferior “kind of person.”
Now, have you ever tried to wake up someone who is having a nice dream, and doesn’t want to be disturbed? It doesn’t usually go great. But the problem is there are certain times when you shouldn’t be dreaming, like when you are driving a car, or investing the savings you were building for your children. And unfortunately, that is exactly what some people are considering. Sometimes, waking someone up can be doing them a favour.

Now I have no idea where Brainchip shares will trade at in 15 to 20 years. But for a company with virtually zero revenues, and a big chunk of expenses, it’s always possible that it won’t exist at all. My guess? It turns out something like Getswift.

Importantly, though, I don’t pretend to understand the technology, and if the company starts winning huge contracts (and actually receiving payment for them), I would likely change my mind. But the point is that no newly minted stock trader understands the odds of Brainchip having success. And the point of this article is that the buyers of Brainchip are newly minted stock traders. If you’re still learning about your online brokerage account, how likely is it that you have an edge when it comes to understanding the bleeding edge of the semi-conductor industry?

https://arichlife.com.au/brainchip-asx-brn-to-drive-share-prices-higher/