The BrainChip (ASX:BRN) share price has rocketed 100% in a month. Is this AI tech company worth its valuation?

It’s been an impressive few weeks for the BrainChip share price.

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Key Points

  • BrainChip share price accelerates 100% since last month
  • Positive announcements boost market confidence in the company
  • valuation has doubled at $2.57 billion

The BrainChip Holdings Ltd (ASX: BRN) share price is off to an incredible start in 2022. The company has gathered plenty of investor excitement following the adoption of its Akida technology into a Mercedes concept car.

At Friday’s market close, the artificial intelligence (AI) technology company’s shares finished 7.14% higher to $1.50 apiece.

What driving BrainChip shares higher?

With the world ushering towards an era of technology innovation across AI platforms, BrainChip has been racing ahead.

In the past few months, the company announced a number of positive developments regarding its Akida chip technology.

As such, the company struck a deal with Japanese semiconductor firm, MegaChips for developing next-generation edge-based AI solutions.

Under the multi-year licence agreement, MegaChips will have access to BrainChip’s intellectual property. This will see the use in designing and manufacturing the Akida technology into external customer’s system on chip designs.

In exchange, BrainChip will receive an upfront license fee and other payments of the transaction.

In a separate announcement, Information Systems Laboratories is developing an AI-based radar research solution for the United States Air Force. The technology will employ BrainChip’s Akida neural networking processor as a tool to incorporate into their portfolio of research engineering and engineering solutions.

Most recently, the company submitted a capital call notice to its 8th biggest shareholder, LDA Capital Limited.

A capital call notice refers to when a company requires funds from a partner whenever the needs arise. The “short-term” loan ensures enough liquidity for the company to fund ongoing investment projects.

Capital calls are legally binding agreements between both the company and the partner. Failure to adhere to a capital call can result in penalty charges, as well as the partner being forced to sell its shares.

Under the notice, LDA Capital will subscribe for up to 15 million BrainChip shares. LDA currently holds a 0.68% interest or approximately 11.14 million shares in BrainChip.

Is BrainChip worth its exorbitant valuation?

When looking at valuation grounds, BrainChip has a market capitalisation of around $2.57 billion, with around 1.71 billion shares outstanding.

To put this into perspective, the company is valued just as much as established tech firms like Megaport Ltd(ASX: MP1) and Dicker Data Ltd (ASX: DDR).

However, in BrainChip’s September quarterly report, receipts from customers totalled US$0.1 million, a decrease of 42% from the prior period. The company noted that it expects the Akida production units and boards to its EAP customers late last year. Although there has been no word on this regarding increased revenues.

Furthermore, the company spent US$4 million on net operating cash outflows. This reflects an increase of 29% on the US$3.1 million recorded in Q2 FY21.

BrainChip closed the September quarter with US$23.9 million in cash. Based on the current attrition rate, this gives the company just over 6 quarters of available funding.

It appears that investors have priced in a lot of good things to come for BrainChip, given its high valuation.

It is also worth noting that the relative strength index (RSI) is at 89, indicating the company’s shares are overbought.

The RSI is a momentum oscillator that is used to assess the strength or weakness of a share price. Normal levels range between 30 and 70, as anything outside of this should ring warning bells, particularly at current.

BrainChip share price snapshot

BrainChip shares have gained more than 160% over the last 12 months. The BrainChip share price reached a 52-week high of $1.896 last week, before treading lower, possibly as a result of profit-taking.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Dicker Data Limited and MEGAPORT FPO. The Motley Fool Australia owns and has recommended Dicker Data Limited. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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