Close to two years ago Mercedes made a tweet about Brainchip’s Akida processor being used in its EQ concept car. This had a cataclysmic effect on the share price, creating a 24 month SP cycle, driven by institutional requirements, greed, and a pinch of manipulation - but is it over, and if so where and how is the company positioned now?
Peter van der Made’s story about developing a revolutionary processor from a conception is nothing short of astonishing. Whether you are bullish or bearish on this company, it’s fair to say that what has been accomplished here is a credit to Australian innovation, and a warning to Silicone Valley that they shouldn’t underestimate the intellect, drive, and capability that resides outside their boarders.
Initially listed in 2004, Brainchip has spent the first 16 years’ designing, refining, and funding various reiterations of Peter’s idea of a Spiking Neuromorphic Processor. In 2020, the first engineered proof of AKD1000 was sent to the TSMC for wafer fabrication, which was a short time later, successfully tested and validated by Socionext. Akida was born. Just prior to this, Brainchip has set up a commercial test environment, and had created an initiative named the “Early Access Programme (EAP)” which saw the engagement of an unknown quantity of proclaimed “Tier 1” companies, the identity of all but a few was hidden behind Non-Disclosure Agreements (NDAs). Once fabricated, AKD1000 chips were distributed to EAP customers, who were supported by Brainchip in integrating them into their respective use-cases.
This kicked off a period of sustained growth for Brainchip, which was steady from Q3 2020 moving into the next year. During this period the company signed two commercial customers, and was gaining wider exposure in scientific, and investment articles, including further validation by NASA. The company entered the ASX300, and was by all accounts, holding its own.
Brainchip has always been centred around the technology, and as their market cap grew, there was evidentially a shortfall with investor relations, market announcements, the quality of its general shareholder management strategy. The company was developing, but somehow it was struggling to manage shareholder expectations.
2022 saw a tweet from Mercedes which caught not only investors off guard, but the company itself. Over a period of just weeks, the SP tripled projecting the company into an entirely different space as new investors became aware of it, attracted to its recent rerate. Ultimately, this pushed the company into the ASX200, and exposed it to larger group of sophisticated institutional investors, who were bound to hold the company on their balance sheets. Up to this point Brainchip was sustainably building its foundation. It finally had a working product, industry engagement, and was beginning to attract commercial customers, but did the fundamentals match the valuation, and could it deliver the expectations of its new shareholders?
Opportunistic by nature, institutions make money by any means possible. Evidently these funds determined early in the listing that the company was at that point overvalued, and made the decision to lend Brainchip shares to short sellers, who sold the shares, and using their own strategies made every effort to lower the SP down to their personal targets, and buy back to return to the lender at a much lower cost. Brainchip inadvertently supported this process with an 18 month period of low communication risk management, and an inability to secure additional commercial customers, arguably due to surrounding economic factors.
This brings us to present day. The SP having dropped exponentially from its 2022 heights, causing a relegation of the company from the ASX200 to the ASX300, resulting in a capitulation event last week as funds sold off their Brainchip holdings. The past couple of trading days has seen the SP lift slightly, possibly due to shorts closing, and shares being sold to stronger hands.
So where does all this leave us now and what is the true position and value of this company? On one hand, the company failed to generate any revenue or new customers, and on the other hand the company has expanded its product offerings, progressed its EAP programme (by taking feedback from the participants and creating AKD1500, and AKD2000 respectively), increased the size of its team, expanded the geographical locations of its offices, and have secured an array of commercial partners, including industry leaders ARM and Intel. Effectively they’ve continued building their foundations.
Picture a scenario where:
- The company didn’t have this unprecedented spike in the value of its SP;
- The company didn’t prematurely entered the ASX200;
- The company wasn’t subjected to such a large short campaign.
And instead picture a scenario where:
- The company had remained in the ASX300;
- The company had not attracted shareholders with unrealised expectations;
- The company had improved the quality of its shareholder management without the fear of creating another similar event;
- The company had not experienced two market shaking events (inflation and Ukraine war);
- The company had delivered exactly what they have done (two more commercial offerings, two more years progression of the EAP, multiple high caliber partnerships, significant personnel expansion, and further industry validation).
Now ask yourself if it is justified that current value of the company is less than it was when Akida was still a figment of Peters imagination, less than it was when the team was a fraction of the size, less then it was before the EAP existed, less then it was before two commercial customers had signed, less then it was before they had any commercial interest and the thought of being mentioned by Mercedes was a pipe dream, less the it was before they had any partnerships, let alone intel and ARM.
Brainchip are currently operating in uncharted territory. Development cycle times are unknown as they have yet to be achieved. Products with edge processors are being developed. Brainchips fundamentals have strengthened Do you consider the current SP fair value and truely reflects the companies position in the AI space?
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