Motley Fool Australia

Has the BrainChip (ASX:BRN) share price weakness created a buying opportunity?

Image source: Getty Images

Investors have been caught in the Brainchip Holdings Ltd (ASX: BRN) hype with promising developments over the last few months. This has led the BrainChip share price soaring to an all-time high of 97 cents. However, shareholders quickly sold off their positions for profit, bringing the share price lower.

At the time of writing, the BrainChip share price is trading at 41 cents, down 4.65% for the day. Many investors may be now wondering, has the dramatic price drop created a buying opportunity?

What does BrainChip do?

BrainChip develops software and hardware accelerated solutions for advanced artificial intelligence (AI) and machine learning applications. The company has a primary focus on it Akida neuromorphic processor unit hardware product.

In layman’s terms, the Akida chip thinks like a human brain and can be used in a variety of world-wide purposes.

The BrainChip share price rollercoaster ride

The BrainChip share price started the year at a price of 4.7 cents and did not move much until the end of May. An agreement with the Ford Motor Company to evaluate the Akida Neural Processor kicked off the investor hype.

In early June, BrainChip announced a joint development agreement with Valeo Corporation, a tier 1 automotive supplier. This further strengthened BrainChip’s momentum on its development of the Akida System-on-Chip (SoC).

A July update on the company’s quarterly earnings, and completion of wafer fabrication, pushed the share price higher. When the results were released to the market, the BrainChip share price reached as high 17.5 cents. This represented a 372% increase from January.

The company’s share price then exploded on news it had partnered with Magik Eye Inc. to provide 3D depth sensing to the Akida chip. The BrainChip share price hit 36.5 cents in the following days, a jump of more than 208% from the prior month.

In addition, Vorago Technologies signed to the Akida early access program agreement in early September. The collaboration – intended to support a Phase I NASA program – shot the BrainChip share price to new horizons.

This prompted a speeding ticket from the ASX which saw the share price touch 97 cents. An investor’s dream run if they held onto the company’s shares since May.

But as all hype wears off without concrete material earnings, the BrainChip share price plummeted. Shareholders took profit off the table and BrainChip shares fell to the mid-40 cent range. A 50% decline from the NASA announcement, but still 1,000% up for shareholders who bought before May.

Buying opportunity?

As BrainChip has made a string of positive developments, its half-year report revealed its Achilles heel. For the period ending 30 June, company recorded revenue of just $13,397, down 80% from $66,635 in 1HFY19.

Brainchip had a net loss of $6.8 million compared to $4.4 million loss in prior period. On an upbeat note, half of the company’s expenditure was in research and development.

In my opinion, I think that the strong pullback in the BrainChip share price has created a small buying opportunity. 

Whether BrainChip can become the next Altium Limited (ASX: ALU), only time will tell.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Related Articles...

Aaron Teboneras
Latest posts by Aaron Teboneras (see all)