The Brainchip Holdings Ltd (ASX: BRN) share price has taken yet another dive on Thursday.
In afternoon trade, the semiconductor company's shares are down 13% to a new multi-year low of 19.5 cents.
This latest decline means that Brainchip's shares have lost approximately 37% of their value this week.
What's going on with the Brainchip share price?
While the company's exit from the ASX 200 index may have weighed on its shares a touch, that doesn't seem to be the real reason for the selling. After all, the index rebalance was announced weeks ago, giving fund managers and index funds ample time to reposition.
So why the selloff? Let's dig a little deeper.
As I have warned countless times before when explaining why investors should not touch Brainchip with a barge pole, it is competing against companies with massive budgets, the best talent in the industry, and big reputations.
Well, earlier this week, one of those competitors showed its hand and may have killed off any faint hopes that Brainchip would have any near-term success.
On 19 September, at its third annual Intel Innovation event, Intel Corp (NASDAQ: INTC) unveiled an array of technologies to bring artificial intelligence everywhere and make it more accessible across all workloads, from client and edge to network and cloud.
Intel CEO, Pat Gelsinger, said:
AI represents a generational shift, giving rise to a new era of global expansion where computing is even more foundational to a better future for all. For developers, this creates massive societal and business opportunities to push the boundaries of what's possible, to create solutions to the world's biggest challenges and to improve the life of every person on the planet.
One of the company's new technologies is its Meteor Lake chip, which will be released in December. It will be able to run generative artificial intelligence on a laptop without having to tap into cloud data for computing power.
At the conference, according to Reuters, Intel demonstrated laptops that could generate a song in the style of Taylor Swift and answer questions in a conversational style, all while disconnected from the internet.
It is this market, the edge, that Brainchip is targeting with its Akida chip. And that's just Intel. There are countless other tech behemoths, such as Nvidia, also making solutions for the edge.
Would businesses choose a solution from Brainchip over Intel or Nvidia? I doubt it. Businesses want solutions from companies with long and successful track records and the capability to offer support if necessary. They don't want to risk putting a chip from an unproven company in their devices, knowing that if something goes wrong, it could be very damaging to their own reputation.
Capital raising
Also potentially weighing on the Brainchip share price is the prospect of a capital raising in the near term.
As of its most recent quarterly update, Brainchip has US$21.8 million in the bank and posted an operating cash outflow of US$4.13 million. And while the Akida 2.0 offering is due to be released soon, if any meaningful revenue is ever coming in, it will still be some time until that happens.
It seems quite likely that the company will have to dilute shareholders further by raising capital. This will be potentially via its arrangement with LDA Capital, which simply sells shares on market to raise the funds. It doesn't buy the shares to become a long-term shareholder.
But needs must. Failure to raise capital would be catastrophic.
All in all, these are worrying times for Brainchip and its shareholders. And with its market capitalisation still at a hefty $350 million, it still looks overvalued considering the above and I wouldn't be surprised if the declines continue.
