At a time when positive returns from technology shares have been few and far between, the BrainChip Holdings Ltd (ASX: BRN) share price has carried the tech torch honourably.
The artificial intelligence chipmaker posted an impressive 8.75% in the September-ending quarter. Similarly, the company's share price is up a considerable 17.1% since the beginning of the year. Whereas, the S&P/ASX 200 Index (ASX: XJO) is 10.3% in the hole.
While the past performance of BrainChip shares is noteworthy, what matters most for shareholders now is: what happens next?
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Could inflation dampen the BrainChip share price?
Where BrainChip goes in the short term is anyone's guess, especially in terms of company-specific developments. However, we can make a general assessment of how macroeconomics could influence the valuation.
As per ANZ Research's estimates (shown below), Australia's cash rate could be heading for a peak above 3.5% at some stage next year. This would suggest a 1% or so increase made by the Reserve Bank of Australia in the near term.
Now, this might be a concern for a company strapped with a lot of debt. Higher interest rates ultimately would mean increased interest expenses. However, BrainChip is fortunate to not hold a cent of debt on its balance sheet as of 30 June 2022.
In fact, BrainChip holds approximately US$28.43 million in cash and equivalents denominated in a strengthening currency. This would suggest that any further interest rates could result in higher interest income, assuming the company maintains its lack of debt.
Conversely, higher interest rates would also imply persisting inflation. This could weigh on the BrainChip share price as payments to suppliers and employees make up the bulk of the company's operational expenses.
For the latest half-year, BrainChip paid out US$9.4 million to employees and suppliers. If this figure were to increase due to inflationary pressures, it could deepen the losses on the company's bottom line.
What about recent activity?
As we chart a course for the last quarter of the 2022 calendar year, short-sellers are counting on the BrainChip share price to fall.
Recently reported by my colleague James, short interest has reached 6.66% in the chipmaker. While this isn't enough to place the company in the top 10 most shorted ASX shares, it is notable.
For those shorting BrainChip, the narrative might be based on the company's unprofitable nature. Despite holding a stack of cash, at the current rate, BrainChip only has roughly one year and five months' worth of runway left until it would need to either take on debt or raise capital.
If we're still in a cold market at that time, the company might find it difficult to raise capital. At the same time, debt costs could be much higher due to increased interest rates.
Either way, it will be an interesting 12 to 18 months ahead for the BrainChip share price.
