BrainChip Holdings Ltd (ASX: BRN) shares were one of the weakest performers on the ASX in FY 2024. In the past 12 months, the ASX AI stock plunged nearly 39% in the red.
The company's shares are swapping hands at 22 cents apiece at the time of writing, having peaked at a closing high of 49 cents per share on 26 February.
Now that we've entered the new financial year, investors are left wondering what lies ahead for BrainChip in FY 2025. Let's take a closer look.
Why have BrainChip shares fallen so drastically?
BrainChip shares had a turbulent time last financial year – and that's putting it lightly.
Stock in the AI company went from trading at yearly lows of 14 cents per share in October last year, before hitting the 52-week highs in February, outlined earlier. This surge was short-lived, and the stock now languishes near prior lows.
Several factors contributed to this rollercoaster ride, in my view.
For one, the significant rise in February was likely influenced by the soaring stock of US-listed AI giant NVIDIA Corp (NASDAQ: NVDA).
Investors went on an AI-stock feeding frenzy after NVIDIA's Q1 2024 results. This prompted speculative trading in ASX tech companies, including BrainChip shares.
However, BrainChip's financial performance didn't justify such a surge. The company reported a net loss of US$28.9 million for 2023.
Perhaps this wouldn't have been an issue if the company hadn't reported a loss of US$22.1 million the year prior. And the fact sales declined 95% over the period.
Stocks are priced on fundamentals. This financial result from BrainChip saw the stock plummet in the days and weeks following.
Which is interesting, given the company's specialty in neuromorphic computing – a highly differentiated AI segment. The company released the second generation of this technology, Akida, in FY 2024. Neuromorphic computing replicates the human brain's processing power in data analysis.
Investors were obviously expecting more from the company in this highly differentiated domain. Especially as management didn't obtain royalty agreements for any sales related to the IP of the technology.
Were investors expecting too much? BrainChip shares have sunk 16 cents apiece since then, so it's difficult to tell.
What's next for BrainChip?
Analysts remain cautious about BrainChip. Niv Dagan from Peak Asset Management recently recommended selling BrainChip shares, citing disappointing financials and high cash outflows, according to The Bull.
Dagan noted the company's cash reserves had decreased from US$14.3 million in the prior quarter to US$13 million, whilst operating cash outflows were on the rise:
This artificial intelligence company ended the recent March quarter with $US13 million in cash compared to $US14.3 million in the prior quarter. Net operating cash outflows in the March quarter were higher than the prior quarter. Cash inflows from customers were lower in the March quarter compared to the prior quarter. The shares have fallen from 49 cents on February 26 to trade at 21 cents on June 20. We prefer other stocks at this stage of the cycle.
Despite reporting significant interest from potential customers, the company has yet to translate this into substantial sales.
At its recent AGM, CEO Sean Hehir expressed optimism about ongoing licensing discussions and potential sales in the audio and microcontroller segments. Time will tell.
Foolish takeaway
BrainChip shares have had a rough year, and the road ahead remains uncertain. While the company's innovative technology holds promise, it needs to deliver on its revenue potential to regain investor trust.
Investors might want to weigh the potential rewards against the risks. Some experts currently advise looking at other opportunities.
