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Why the BrainChip (ASX:BRN) share price is crashing 21% lower today

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The BrainChip Holdings Ltd (ASX: BRN) share price has continued its slide and is crashing notably lower on Tuesday.

In afternoon trade the artificial intelligence technology company’s shares are down a massive 21% to 53 cents.

This latest decline means the BrainChip share price is now down 45% from the record high it hit just last week.

Why is the BrainChip share price crashing lower?

The BrainChip share price appears to have come under pressure due to profit taking after some sensational gains over the last few weeks.

For example, even after accounting for today’s sizeable decline, its shares are up over 120% in the space of a month. 

What else is weighing on its shares?

In addition to this, I suspect investors may have come to the realisation that the rampant rise in its share price has not truly been justified.

While BrainChip is making progress with some exciting technology, it still has a long way to go before it proves it has a marketable end product and is generating meaningful revenue.

In the first half of FY 2020, BrainChip reported revenue of US$13,397 and posted a loss of US$6.86 million.

It is also worth noting that the company doesn’t have the largest market opportunity for its technology. It estimates that the Neuromorphic Chip Market was worth US$111 million in 2019 and will grow to US$366.14 million in 2025.

Given the competition in the industry from a number of tech giants, it seems unlikely BrainChip will be able to dominate this market.

So with a market capitalisation of over $1 billion (prior to today’s decline), BrainChip appears to be one of the most wildly overvalued shares on the Australian share market in my opinion.

In light of this, I wouldn’t be surprised to see its shares continue their descent in the coming days.

If you’re looking for exposure to the artificial intelligence market, I would suggest you consider Appen Ltd (ASX: APX) instead.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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