ASX tech stock Brainchip Holdings Ltd (ASX: BRN) has had a rocky 12 months.
After falling to a 52-week low of $0.14 a share back in October 2023, it traded mostly sideways until February, when it quickly shot up to a 52-week high of $0.54. Since then, it's pulled back again and is currently trading at just $0.22.
Overall, the Brainchip share price has dropped almost 40% over the past year – but it's been a wild ride getting here. So, what can Brainchip shareholders now expect from this topsy-turvy stock?
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What does Brainchip do?
Brainchip is an Australian artificial intelligence (AI) company that specialises in neuromorphic computing.
The phrase 'neuromorphic computing' might sound like something out of a sci-fi novel, but it basically refers to computer systems and processors that are designed to mimic the way the human brain works.
For example, conventional computer processors ingest large amounts of data from many different inputs simultaneously. But, if you think about how the human brain works, it filters out unneeded inputs and focuses just on the most essential. This makes your brain a much more efficient processor of information than a standard computer chip.
Even as you sit rivetted reading this article (as I'm sure you currently are and didn't drift off at the first mention of 'neuromorphic computing'), there are any number of different background noises, visual distractions and other sensory inputs that your brain is ignoring – and it's only once you actively focus on them that your conscious mind becomes aware of them again.
In other words, your brain recognises that the constant background hum of your air conditioner or the sensation of your legs touching the chair you're sitting on aren't important inputs for the task you're currently focussed on.
So it doesn't need to constantly process them. Instead, your brain alerts you to changes in your surroundings and prioritises these inputs – as these could be events you need to respond to.
This is how Brainchip has designed its flagship product, the Akida 'neuromorphic' computer chip. The chip is 'event-based', meaning it responds to changes in the environment in much the same way as the human brain does. This makes it significantly more efficient than standard computer chips, because it processes key information faster and reduces unnecessary power consumption.
What has happened to the Brainchip share price over the past year?
Brainchip shares went on a tear back in February, skyrocketing over 200% in a matter of weeks. The massive jump in its share price even prompted a 'please explain' notice from the ASX, but Brainchip couldn't offer a business reason for the sudden interest in its stock.
In truth, the surge in Brainchip shares could have had more to do with events happening overseas than anything Brainchip had actually done. The sudden rise of American AI company NVIDIA Corp (NASDAQ: NVDA) inspired short-term traders to greedily gobble up shares in other AI companies, hoping to latch onto the next 'big thing' – even if company valuations didn't justify the investment.
Unfortunately for Brainchip, by the end of February, its shares were already in freefall again after it reported a net loss of US$28.9 million for 2023 – an even worse result than its 2022 net loss of US$22.1 million.
So, what's next for Brainchip?
Brainchip is the first company in the world to try to commercialise neuromorphic technology, which comes with both benefits and disadvantages.
On the one hand, Brainchip has a huge addressable market and few viable competitors – which is the ideal scenario for a strong economic moat. If Brainchip can show that neuromorphic technology can be successful, it has the first-mover advantage and can develop a loyal brand following.
On the other hand, it's trying to convince its customers to buy a piece of highly complex technology that they have probably never heard of before. This is a hard thing to do – regardless of how groundbreaking that technology might be.
So far, its financial performance has been less than convincing. For its part, Brainchip blamed its 2023 net loss on a 'transitional year', in which it invested in further developing its technology and expanding its marketing and sales functions. However, it was still hard for investors to look past the whopping 95% year-on-year drop in revenues.
In its 2023 annual report, Brainchip mentioned the 'strong levels of interest' it had received from potential customers and the 'encouraging pipeline' it had built throughout the year. Investors will need to see that translated into real sales (and quickly!) before they can confidently invest in Brainchip shares.
