Brainchip is operating in the biggest megatrend today, AI microchips
\nBRN\u2019s shares have surged 200pc this year, but the company faces obstacles
\nCan BRN\u2019s sales gain traction before it runs out of cash?<\/p>\n
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The AI frenzy has taken over the market, but despite its huge potential for mankind, its ascendancy hinges on one critical factor \u2013 the evolution of microchips<\/strong>.<\/p>\n Microchips are the foundational infrastructure powering AI systems, and it is why stocks like Nvidia have tripled over the past year.<\/p>\n On the ASX, shares in neuromorphic microchips developer, Brainchip (ASX:BRN)<\/a><\/strong>, have also been surging by almost 200% this year.<\/p>\n But the company\u2019s shares plummeted 35% on Tuesday after the latest earnings showed that it was rapidly burning through cash,<\/p>\n Brainchip reported yet another full year loss \u2013 this time US$28.9 million \u2013 its sixth straight year<\/strong> of red ink after reporting annual losses since 2018.<\/p>\n \u00a0<\/p>\n Source: Google<\/strong><\/em><\/p>\n \u00a0<\/p>\n The latest result is a stern reminder to investors that microchips is fundamentally a long term venture that\u2019s fraught with short term obstacles.<\/p>\n One of the biggest challenges facing Brainchip, or microchip companies in general, is that it needs to continuously invest in research and development (R&D)<\/strong> in order to meet evolving market demands.<\/p>\n This includes constantly improving the performance of the chips, reducing power consumption, and enhancing their functionality \u2013 before the first sale can even be made.<\/p>\n Brainchip reported total expenses for the year of US$28m \u2013 of which US$7 million (or a quarter) alone were in R&D expenses.<\/p>\n Other costs include marketing expenses of $4.7m, and share-based expenses of $11m \u2013 which include performance payments, vesting options and other rights issued to its directors.<\/p>\n Against these expenses is revenue totalling just $0.2m for the year.<\/p>\n But what\u2019s more troubling is Brainchip\u2019s net operating cash flow<\/strong>, which has grown increasingly negative: from -$7.2m in 2018, to -$17.5m in 2023.<\/p>\n This cash burn has left Brainchip with a cash balance of just over US$14 million as at December 31.<\/p>\n Will this be enough to take Brainchip through this financial year?<\/p>\n \u201cAs always, I will closely scrutinise every dollar spent at BrainChip to ensure we optimise the value generated, while we work aggressively to commercialize our Akida technology,\u201d said CEO, Sean Hehir<\/strong>.<\/p>\n The company has been cap raising, and it\u2019s just received a fresh cash injection of around US$4m in January from LDA Capital<\/strong> through newly issued shares, as part of an agreement that allows LDA to invest up to 25 million shares in the company.<\/p>\n \u201cWhile we will continue to be judicious with our use of cash, having access to funding from our well-respected partners at LDA Capital, strengthens our business continuity position against well-capitalised and more established competitors in a highly competitive market,\u201d said Hehir.<\/p>\n \u00a0<\/p>\n As a business, there is no doubt that Brainchip ticks all the boxes in terms of where our world is heading toward:<\/p>\n 1\/ AI will be the great economic driver over the next decade<\/strong> The company\u2019s first-to-market neuromorphic processor, the Akida Neuromorphic System-on-Chip (NSoC)<\/strong><\/a>, is a unique product in the field of neuromorphic computing.<\/p>\n While it may not be accurate to label it as the \u201cworld-leading\u201d product in its category, the Akida NSoC still represents a significant advancement in the field of AI.<\/p>\n Neuromorphic computing differs from traditional computing architectures in that it aims to emulate the brain\u2019s neural networks.<\/p>\n The Akida chip can basically mimic the way the human brain processes information, utilising spiking neural networks (SNNs) to perform tasks such as pattern recognition, classification, and inference.<\/p>\n Akida\u2019s architecture offers advantages such as low power consumption, real-time processing capabilities, and suitability for edge computing applications.<\/p>\n And that\u2019s exactly where Brainchip sees its future \u2013 in the Edge AI segment<\/strong>, which many believe could be the next big thing.<\/p>\n \u00a0<\/p>\n Edge computing essentially enables data processing and analysis to occur closer to the source of data generation, reducing latency and improving efficiency, precisely what the Akida NSoC microprocessors were built for.<\/p>\n Akida is also capable of continuous learning \u2013 which allows its customers to create ultra-low power chips with the ability to incrementally add learn on-chips, without the need to retrain in the cloud.<\/p>\n This means the Akida chip can think with ultra-low power consumption, because it eliminates the power usage caused by communication between separate elements \u2013 which ultimately leads to reduction in costs.<\/p>\n And reducing processing costs could mean big bucks in the AI space.<\/p>\n \u201cWhoever the winner is in this space, it\u2019s going to be incredibly lucrative,\u201d Merewether Capital founder and MD Luke Winchester, told Stockhead previously.<\/a><\/strong><\/p>\n \u201cYou can see the hype around AI, anyone who can bring down the processing costs that will come from increased processing from AI, there\u2019ll be billions and billions of dollars to be made,\u201d he said.<\/p>\n That said, ultimately the biggest question for Brainchip is: can Akida sales gain traction fast enough before it runs out of cash?<\/p>\n The good news is, the company has recently accepted pre-orders of the Akida Edge AI Box<\/strong>, a product powered by the Akida NSoC chip, and was optimised for running AI algorithms at the edge.<\/p>\n \u201cThe Akida Edge AI Box is ideally suited to provide the low latency and high throughput processing with ultra-low power consumption \u2013 a necessity for the next generation of smart Edge devices,\u201d said Hehir.<\/p>\n Sales of the Akida Edge AI Box is crucial for securing Brainchip with enough cash to fund the next level of its Akida development.<\/p>\n \u00a0<\/p>\n Short term obstacles aside, the company does look to be in good hands.<\/p>\n It has a seasoned exec team including experienced CEO Hehir<\/em>, and chief technology officer, Tony Lewis<\/em>.<\/p>\n The company\u2019s headcount includes 85% engineers and 15% Phds. Brainchip also has been granted 17 patents worldwide, with 30 more pending.<\/p>\n But fundamentally, what\u2019s most important is that there is undeniable movement toward Edge AI.<\/p>\n From consumer robots, to intelligent appliances with intuitive human-machine interfaces (HMI), there is a concerted effort worldwide to integrate cost-effective Edge AI acceleration.<\/p>\n More importantly, Edge AI has a real demand for optimised, economical and specialised compute.<\/p>\n This is a strong driver for AI-focused companies globally to seek the best solutions to allow them to gain market share in this rapidly changing and ever-competitive market.<\/p>\n \u201cThis dynamic bodes very well for BrainChip alignment with where the market is headed, and where BrainChip is going,\u201d said chairman, Antonio J Viana.<\/p>\n \u201cAll the hard work and investment over the last two years has put BrainChip in a position to succeed and we kicked off 2024 on a strong positive note.<\/p>\n \u201cThe robust relationships we have cultivated with product companies and OEMs over the last year have been extremely beneficial in our development,\u201d said Viana.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n\n \ufeff<\/span><\/span>\u00a0 The post Brainchip\u2019s potential in Edge AI is undeniable, but can sales catch up with its cash burn?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Ticking the right boxes<\/h2>\n
\n2\/ The Edge AI market is fragmented and rapidly growing<\/strong>
\n3\/ A novel computing approach will prevail<\/strong><\/p>\nEdge AI is the future<\/h2>\n
Can Brainchip capture this big opportunity?<\/h2>\n
Company share price today:<\/h2>\n
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