Why BrainChip Stock Should Be Avoided

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If the definition of insanity is doing the same thing repeatedly and expecting different results, then the same can be said for investors who repeatedly invest in stocks that have more red flags than a Chinese military parade. The biggest giveaway is the gaggle of prophets that come around letting you know what great opportunity you’re missing out on.

Just over a year ago, we published a piece titled “Neuromorphic Computing Rethinks AI Chip Design,” which included mention of an Australian company called BrainChip (BRN:AU) which claims to have built a groundbreaking neuromorphic processor.

Over the past few months, BRN shares have been soaring for no reason whatsoever. Regulators of the exchange which the stock trades on – the Australian Securities Exchange (ASX) – inquired as to why, and BrainChip said there was no substantial reason for the price increase. (This isn’t the first time that regulators have inquired about unexplained price movements.)

Credit: Bloomberg

In the past few weeks, some individuals have been commenting on our past article about how BrainChip might get acquired. This is usually a telltale sign of a stock being promoted. The believers who tout this stuff aren’t necessarily acting maliciously. They’ve drunk the Kool-Aid, and now they’re doing the same thing promoters do. All you need to do is read the tea leaves.

Wallstreetbets and ASX_Bets

Now that trading stocks is practically free, everyone has decided to become a “day trader.” The epitome of this today is Robinhood, a platform that lets anyone trade for free and engage in extremely risky behavior. It’s largely become a casino driven by a large group of individuals who cheerlead this sort of behavior.

Over the years, stock promoters have migrated from Yahoo Finance message boards, to Investors Hub, to Reddit. The most infamous example of the latter is a subreddit called /r/wallstreetbets, where people gamble away their life savings on complete garbage. In one example, a “trader” woke up with $110,000 in their account and couldn’t explain how it got there. One can imagine how many people lose all their money not knowing how. There’s also a subreddit called /r/ASX_Bets which calls itself “an Australian equivalent to /r/Wallstreetbets.”

As we expected, BRN is a popular topic on ASX_Bets these days. It’s a complete mess of posts that show just how many people are dabbling in this stock without the faintest understanding of what they’re doing. Plenty of memes are posted mocking the bag holders. From three days ago:

Credit: r/ASX_Bets/

The above meme mocks someone who believes in BrainChip’s latest technological manifestation, the Akida neuromorphic system, yet can’t understand why his investment didn’t hit some arbitrary share price target. The same people who say “hold with diamond hands” turn around and mock those that do.

Credit: r/ASX_Bets/

It epitomizes what these forums are about, and it also highlights the inability for BrainChip to achieve any meaningful tractions, despite numerous press releases being made over the years suggesting otherwise.

Boulevard of Broken Dreams

When a company makes lots of promises, look at their track record of delivering on previous promises. An inability to execute in the past is a clear indicator that the same can be expected of the future.

Going back four years from now, past filings for BrainChip show some big red flags. In summer of 2016, we see a “research report” issued by Foster Stockbroking which talks about how much potential BrainChip has. It prominently states, “Foster Stockbroking is engaged by BRN to provide corporate services for which it has earned fees and continues to do so.” We recently warned our readers to avoid any stock that is being recommended by a firm that is being compensated – directly or indirectly. Says the Foster Stockbroking report:

We expect an announcement around an initial licensing deal sometime in 2016, which should be a major share price catalyst.

Credit: Foster Stockbroking

This is one of many expectations that you’ll see which never come to fruition. Here’s an example taken verbatim from a company press release filed with the ASX the same year:

  • Sept 2016BrainChip to roll out game protection technology at major Las Vegas casino following successful completion trial. The roll out will deliver an immediate and growing revenue stream to BrainChip.

With revenues of $13,397 USD in for the first half of this year, nothing apparently came of the above announcement. Ditto for the below statement made in October of 2016.

At this juncture, we have commercial engagements, trials, and meaningful discussions with large casino operators, airports, schools, natural resource providers, and traffic control providers amongst others.

Credit: BrainChip

In 2017, the press releases continue:

  • Apr 2017 – BrainChip, Inc. Announces Engagement in Civil Surveillance Trial with the French National Police Department of Toulouse
  • Jan 2017 – BrainChip Announces Deployment of Game Outcome Solution at Mohegan Sun Casino
  • Jun 2017 – BrainChip Holdings Ltd. and Safran collaborate on development of machine vision inspection system for harnesses production activities
  • Oct 2017 – BrainChip Ships First BrainChip Accelerator To a Major European Car maker for Evaluation in ADAS and AV Systems
  • Oct 2017 – BrainChip to Provide Artificial Intelligence Video Analytics for a Large-Scale Municipal Project

We’ve cherry-picked a few of the many press releases made in 2017. There are plenty, and at least a few announced new products that don’t appear to have been sold yet. In 2018, the press releases continue, but we’ve seen enough.

Progress by Press Release

Four years later, and all those engagements, trials, and discussions have resulted in no meaningful revenues. The superfluous press releases continue to this day. Last month, BrainChip announced a partnership with a startup called Magik Eye. At least they’re honest enough to include the below statement:

This partnership is for one year and can be extended by mutual consent of the parties. It starts with joint marketing services to promote compatibility that could lead to customers for each company. The agreement does not define any material conditions that need to be satisfied by either company.

Credit: BrainChip

It’s a big nothing sandwich. So is a press release this month titled “BrainChip Announces India Software Development Center.” Says the press release

The new entity is not expected to add incremental expenses to the Company’s historical cash outflows as the staff have served the Company as contracted services providers for several quarters and the Company has provided funds for the facility and cost of equipment.

Credit: BrainChip

So the big announcement is that they’ll continue to use some Indian contractors they’ve been using. (Rolls eyes.)

When a company issues non-substantial press releases non-stop while the FOMO traders on Reddit tout them as the next coming of Christ, it’s just the same old story we’ve seen time and time again. This is a company with no meaningful revenues and non-stop glimmers of hope. They’ve been trying to validate their technology for at least four years now. In the meantime, all kinds of morons on Reddit are pumping and dumping shares, treating the entire thing like a casino. It’s an absolute mess.

To all the people who think they can come around here and say things like, “I think it would make a lot of sense for NVIDIA to buy BrainChip,” take your shite posting somewhere else. Plenty of well-meaning retail investors who don’t understand all the pitfalls out there might actually take you seriously, and that’s why we’re calling this out for what it is.

BrainChip’s Warning

In looking through the dozens of regulatory filings being made by BrainChip, they appear to be responding to regulatory inquires in a timely fashion. In recent cases, they put in place caveats that explain no guarantee of revenues is given with their partnership press releases.

Back in 2016, an extremely favorable article was posted by the Australian Financial Review which resulted in the share price increasing such that trading was halted. BrainChip responded with a letter explaining that the article made all kinds of false statements about their potential. While the letter talks up all their “opportunities,” it clearly states, “there is no guarantee the trial deployments will result in material commercial arrangements.” That’s for sure.

Companies like BrainChip understandably support their operations by continuing to issue shares which dilutes existing shareholders. Today, the company has a market cap of over $400 million USD with over 1.5 billion shares outstanding. One of their many share sale prospectuses clearly spells out the risk of the company not being able to secure technology partners – ones that give them money that is.

Credit: Brainchip

As we’ve said before, it doesn’t really matter if the management team is well-intentioned or not. The outcome is still the same for investors who ignore red flags and choose to “invest” in companies that can’t manage to validate their technology through meaningful revenue streams and eventually run out of steam.

Conclusion

So far, an investment in BrainChip shares has been an investment in lots of promise and little substance. As for the recent share price surge, if you want to speculate, go to Vegas. You’ll enjoy losing your money there a whole lot more. If you’re really want to invest in AI chips, have a look at NVIDIA or Synopsys.

As for anyone who thinks about trying to play the short game, think twice. The irrationality of the YOLO herd will far exceed your margin limits. Ignore this noise and focus on companies with traction. Promising press releases and 5 AUD won’t get you a cup of coffee at Gloria Jean’s these days.

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