The Brainchip Holdings Ltd (ASX: BRN) share price finished the financial year in an undeniably disappointing way.
Shares in the machine learning hardware developer cascaded further last month, leaving shareholders with little to celebrate at the end of the fiscal period.
During a positive month for the S&P/ASX All Ordinaries Index (ASX: XAO), Brainchip shares descended 20% in June, erasing $155 million of market capitalisation. Surprisingly, this disastrous performance unfolded without any price-sensitive announcements being made.
Testing the faith of its shareholders
Brainchip is on a mission to make every device with a sensor ‘AI-smart’. In an attempt to achieve this, the company has spent years developing its Akida processor platform. However, as the team has transitioned to a focus on commercialisation, financial success is yet to materialise.
As fellow Motley Fool colleague James Mickleboro pointed out back in May, Brainchip’s own management acknowledged the commercial failure of its Akida 1.0 product. This company attributed this to its existing solutions being ‘good enough’ for its potential customers.
The solution… the Akida 2.0 platform.
Uncertainty around the company’s next iteration could be to blame for the demolition of the Brainchip share price in June.
After the immense amount of capital invested and the consequential failure of Akida 1.0, it would be reasonable for shareholders to wonder whether version two will truly succeed where its predecessor did not.
In real terms, the longer it takes to provide a return on capital, the more remarkable that return will need to be to compensate shareholders adequately. Additionally, long-term investors risk further share dilution in the process in the event of a future capital raise.
Brainchip provided its quarterly financials for the period ending 31 March 2023 on 28 April 2023. At the time, the company had access to around US$25.9 million in cash (including proceeds to be recognised in the next quarter).
Based on its rate of cash consumption, it would seem Brainchip has less than five quarters of cash on its balance sheet.
Pressure on the Brainchip share price
High short interest could be another negative influence over Brainchip shares. The AI chip maker was in the top 10 most shorted ASX shares this week, strapped with 7.4% short interest.
The combination of a $620 million market cap and a lack of revenue streams has clearly struck a chord with short sellers. Yet to provide a marketable product, the future valuation of Brainchip could be floating in choppy waters.
At a price-to-book (P/B) ratio of 18, any downfall could prove significant if Brainchip’s patents wash out without value.
