Can the BrainChip share price continue its growth run this quarter?

A look into how BrainChip might be positioned for the road ahead…

| More on:
A woman holds her hand out under a graphic hologram image of a human brain with brightly lit segments and section points.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The BrainChip share price has been a winner recently, outperforming the broader market
  • BrainChip currently holds no debt that would be exposed to rising interest rates
  • Increasing short-seller interest suggests there could be some potential pitfalls 

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?

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.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Technology Shares

Why this top fund manager thinks this ASX tech share can continue rising

Investors can be excited about this stock.

Read more »

Man sitting in a plane looking through a window and working on a laptop.
Broker Notes

Macquarie tips 28% upside for this ASX All Ords tech stock

Let's see what the broker is saying about this growth stock.

Read more »

happy teenager using iPhone
Share Gainers

Up 96% since April, should I still buy Life360 shares today?

A leading expert offers his verdict on the growth outlook for the surging Life360 share price.

Read more »

A female soldier flies a drone using hand-held controls.
Technology Shares

DroneShield shares charge higher on European expansion plans

This high-flying stock is surging again on Tuesday. But why?

Read more »

Human head and artificial intelligence head side by side.
Technology Shares

NextDC share price jumps 8% on big news

Another big announcement has caught the eye of investors this morning.

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Technology Shares

Up 60% in two months, is it too late to buy Pro Medicus shares?

Pro Medicus has been delivering solid returns for years. Can the trend continue?

Read more »

Group of people in a gym high five each other surrounded by gym equipment.
Mergers & Acquisitions

This ASX tech stock is hitting a record high on acquisition news

The market is responding positively to this news. Let's dig deeper into it.

Read more »

A man in a suit face palms at the downturn happening with shares today.
Technology Shares

Guess which ASX 300 share is crashing 17% on shock news

Investors are rushing to the exits on Thursday. Let's find out why.

Read more »