There has been only one group of investors doing well with Brainchip Holdings Ltd (ASX: BRN) shares in recent times – short sellers.
As readers may be aware from our weekly updates, short interest in this struggling semiconductor company has been increasing in 2023.
So much so, earlier this week we reported that it was the 10th most shorted ASX share with 7% of its shares in the hands of investors.
Unfortunately for shareholders, short sellers have since increased their interest to 7.15% since then according to data provided by ASIC.
This appears to indicate that short sellers don't believe Brainchip shares have bottomed out yet. That's despite them being down almost 60% over the last 12 months, as you can see on the chart below.
Why are short sellers targeting Brainchip shares?
While short sellers haven't gone public with their short thesis, it isn't hard to see why they may be licking their lips when they see Brainchip's shares and its almost $800 million market capitalisation.
Here is a company that has promised the world for years and delivered nothing but a ballooning share count from capital raisings and overly generous performance rights.
According to CommSec, back in 2014, the company had 220 million shares outstanding. As per an update this week, this number has increased to just under 1.8 billion shares.
But it won't stop there! Brainchip has just announced the date of its annual general meeting and will ask shareholders to vote on the granting of further restricted stock units and performance rights. This includes approximately 2.3 million units to its CEO, Sean Hehir, who has helped Brainchip deliver less revenue than a cafe in the Melbourne CBD since joining the company.
And this won't be the first time he has been granted shares. Last year he was granted 2 million shares and then sold almost half of them soon after, as covered here.
Will Brainchip's revenue ever justify its market cap?
While Brainchip certainly has a large addressable market, it has been struggling to turn discussions into sales. It also recently admitted, in many respects, that its previous Akida platform was not good enough for its market.
Management advised that it listened to customer feedback and launched a new platform last month. If this one doesn't generate meaningful revenue, maybe the company never will.
Especially given the fierce competition it faces in an industry where tech giants spend billions on research and development each year.
And while Brainchip claims to have the leading technology in the edge AI industry, you have to wonder if a major customer would truly trust something largely unproven and without a significant support network? Could Brainchip deal with a mass recall, for example? It could be more likely that a major customer would rather settle for a slightly inferior product from a trusted tech giant like IBM or Nvidia than a risky proposition like Akida.
Time will tell if this is the case, but the smart money is clearly betting against this meme stock.
