Big run up in advance of the annual report from AI contagion? Expectations of announcements following CES?

Big dump yesterday when there was nothing of substance just more big losses. Accumulated losses of $174M. $8M paid to Management last year!

I still believe that Edge technology is going to have its day. Just not sure if Brainchip is going to survive to see it! Is the IP going to provide a return?

They don't help themselves when the metadata heading for the annual report shows as 2005!

The Group made a net loss after income tax for the year ended 31 December 2023 of $28,881,041 (2022: $22,087,670).

Revenues for the year ended 31 December 2023 of $232,004 decreased 95% from $5,071,252 in 2022.

Share-based payment expense of $11,354,234 for the current period increased 24%, or $2,206,081 from the same period a year ago.

At the end of the year, the Group had consolidated net assets of $16,834,321 (2022: $23,718,406), including cash and cash equivalents of $14,343,381 (2022: $23,165,288).

Selling & marketing (S&M) expenses of $4,745,911 for the current period increased 50%, or $1,582,614 worldwide

While the Company did not secure royalty-bearing IP sales agreements in 2023, it laid the foundations for future commercial success through a more focused, targeted, and qualified customer engagement strategy that prioritized engagements with qualified technology customers that were already at an advanced stage of product development with defined budgets and timelines and where there were competitive opportunities to bring neuromorphic technology into consideration against existing products. This strategy was rewarded with strong levels of interest from potential customers and an encouraging pipeline of detailed technical assessments which, if BrainChip is successful in managing, would lead to commercialization in 2024. 

Interesting appointment of CTO. Is it a retirement position or indicative of confidence in the technology?

BrainChip announces the planned retirement of co-founder and CTO Peter Van der Made

Peter Van der Made will continue to sit on the Board of Directors and Scientific Advisory board.

Announces new CTO, Dr. Tony Lewis, former VP and Global Head of the AI and Emerging Compute Lab at HP, Inc. (left in 2020)

Tony also made significant contributions at Qualcomm, Inc., where he led the Zeroth© Neuromorphic Engineering Project while contributing to projects in intelligent AI agents and robotics and collaborating closely with Qualcomm Ventures. (2013)

Brainchip today announced their 2023 Half Year Report - Here

Highlights (lowlights?)

• Revenue down to $115,606
• Expenses up 30%
• Net Loss of $17,146,781
• Cash & equivalents of $21,824,785 (1 half remaining at current run rate)

The CEO is claiming that the focus on 2nd gen architecture is leaving customers to wait until the official release before placing orders. How accurate is this? No idea. I get that they are paving the path in this space but if it was that revolutionary you'd think that the orders would be flying through the doors. Until investors see some significant revenue coming through the door this trend is not going to stop.

Share's are now down 87% from the highs and my old straw is here to haunt me.

Microsoft has been working on its own ChatGPT chip since 2019 - Is this the end for BRN?

https://www.reuters.com/technology/microsoft-developing-its-own-ai-chip-information-2023-04-18/

Rather than cutting back costs BRN appointing a new non-executive director. Further confirmation of the tech by appointing someone with extensive semiconductor industry connections or another retirement cash job? Clearly the previous quarter got hopes up of ongoing revenue which was squashed by the comments in the latest 4C. Surprised that the SP wasn't hammered more. Could easily pop again on a licensing/ contract announcement but they have been pretty scarce of late. Still have faith that this will produce long term but happy for now to have sold out the bulk of my holding at much higher valuations.

Still hold in Super, SM and RL

Appointment of Duy-Loan Le to its Board of Directors, as a non-executive director. Mrs. Le has a remarkable professional history, both technologically and in executive management, having retired from Texas Instruments as a Senior Fellow after 35 years. While at TI, she led TI’s multi-billion-dollar memory and DSP product lines with joint venture partners in five countries and three continents.

“Duy-Loan’s phenomenal depth as a technologist, executive, and board member in the semiconductor industry are assets we will leverage with her as an active BrainChip board member,” said BrainChip board chair, Antonio J. Viana. “Her deep technical acumen, shrewd financial focus, and strategic ecosystem influence will support and catalyse our commercial growth.”

Edge computing is increasingly gaining media coverage and BRN’s fundamental ideas appear to be well supported but the big question is still whether the big players can find a way around BRN’s IP to do the same thing. MIT and Intel pushing software. Brainchip mentioned in the same sentence as IBM, Qualcomm. Intel recognising the need for an accessible developer community which is exactly where the Akida developer kits are targeting. BRN’s product on market whereas others still seem to be at earlier stages of development.

MIT are working on an algorithmic approach backed by some big players.

“Learning on the edge

A new technique enables AI models to continually learn from new data on intelligent edge devices like smartphones and sensors, reducing energy costs and privacy risks.”

”Han and his collaborators employed two algorithmic solutions to make the training process more efficient and less memory-intensive. The first, known as sparse update, uses an algorithm that identifies the most important weights to update at each round of training. The algorithm starts freezing the weights one at a time until it sees the accuracy dip to a set threshold, then it stops. The remaining weights are updated, while the activations corresponding to the frozen weights don’t need to be stored in memory.

Their second solution involves quantized training and simplifying the weights, which are typically 32 bits. An algorithm rounds the weights so they are only eight bits, through a process known as quantization, which cuts the amount of memory for both training and inference. Inference is the process of applying a model to a dataset and generating a prediction. Then the algorithm applies a technique called quantization-aware scaling (QAS), which acts like a multiplier to adjust the ratio between weight and gradient, to avoid any drop in accuracy that may come from quantized training.”

From my understanding these processes sound like they achieve the same sort of result as BRN spiking neural networks.

”On-device learning is the next major advance we are working toward for the connected intelligent edge. Professor Song Han’s group has shown great progress in demonstrating the effectiveness of edge devices for training,” adds Jilei Hou, vice president and head of AI research at Qualcomm. “Qualcomm has awarded his team an Innovation Fellowship for further innovation and advancement in this area.”

This work is funded by the National Science Foundation, the MIT-IBM Watson AI Lab, the MIT AI Hardware Program, Amazon, Intel, Qualcomm, Ford Motor Company, and Google.”

SOFTWARE, NOT HARDWARE, WILL DRIVE QUANTUM AND NEUROMORPHIC COMPUTING

“But as Intel noted this week at its Intel Innovation 2022 show, while the hardware is important to bringing quantum and neuromorphic to life, what will drive adoption is the accompanying software.”

“Until Lava, it’s been very difficult for groups to build on other groups’ results even within our own community because software tends to be very siloed, very laborious to construct these compelling examples,” Davies told journalists. “But as long as those examples are developed in a way that cannot be readily transferred between groups and you can’t design those at a high level of abstraction, it becomes very difficult to move this into the commercial realm where we need to reach a broad community of mainstream developers that haven’t spent years doing PhDs in computational neuroscience and neuromorphic engineering.”

Lava is an open-source framework with permissive licensing, so the expectation is that other neuromorphic chip manufacturers – which include the likes of IBM, Qualcomm, and BrainChip – will port Lava to their own frameworks. It’s not proprietary, though Intel is the major contributor to it, Davies said.

Disc: held in RL and SM

US blocks sales of some AI chips to China as tech crackdown intensifies Nvidia, AMD mentioned

This will be interesting. Will the ban affect uptake of BRN IP or does it open a door for the tech through other avenues eg Renesas. Little detail so far but I guess the company will have to declare if they are affected

Asked for comment, the US department of Commerce would not say what new criteria it has laid out for AI chips that can no longer be shipped to China but said it is reviewing its China-related policies and practices “keep advanced technologies out of the wrong hands

Half yearly accounts have been released this morning, interestingly the first real sign of the increase in revenue ($4.1M) that some members have been discussing at length. It should be observed that more than half of this is in receivables so will keep a look at to make sure this converts to cash.

I would think most holders should be pretty happy with how things are progressing, still plenty of funding providing revenue can keep accelerating and turns into some operating leverage

Held IRL + strawman

Businesswire article. “BrainChip and NVISO Partner on Human Behavioral Analytics in Automotive and Edge AIDevices“

collaboration targeting battery-powered applications in robotics and mobility/automotive to address the need for high levels of AI performance with ultra-low power technologies. The initial effort will include implementing NVISO’s AI solutions for Social Robots and In-cabin Monitoring Systems on BrainChip’s Akida™ processors.

NVISO is an Artificial Intelligence company founded in 2009 and headquartered at the Innovation Park of the École Polytechnique Fédérale de Lausanne (EPFL) in Switzerland. Its mission is to help teach machines to understand people and their behavior to make autonomous machines safe, secure, and personalized for humans.

Saw that Macquarie has written a research piece on BrainChip - no recommendation and not much that also hasn't been stated here. Not one I've looked at all but seen some debate on here.

MQG reports:

Main Strengths:

Strong demand for AI enabled IoT and edge devices

Independence from cloud: Akida’s capabilities are suited to address the sustainability concerns raised by extreme power consumption and emissions from data centres, allowing a shift from traditional cloud data centres to processing on the device. Akida is ~97% more energy efficient compared to processing the same task at a data centre.

International growth: New sales partnerships with technology solutions provider SalesLink and high-tech distributor Eastronics to expand Akida’s commercial reach in Europe and Israel.

Future products: BRN intends to evolve the Akida technology overtime. Chips currently in development include AKD2000, AKD3000 and the AKD500

Chips and board sales: Revenue from sales of Akida chips manufactured by third parties (i.e TSMC in Taiwan). PCIe Boards and Akida Development Kits (ARM-based Raspberry Pi & x86 Shuttle PC) are also available for order on their website.

IP licensing fees: From single product to multi-product use, customers can use the Akida IP by purchasing IP licenses. • Non-recurring engineering (NRE): One-off fees related to adapting Akida technology to specific integration needs.

Royalties: Recurring royalties from each product sold that includes Akida IP by customers

Crossed threshold from R&D into commercialisation: BRN evolved its operations to become the world’s first and only commercial producer of neuromorphic AI chips in FY21.

Strong partnerships: BRN has IP licensing agreements with Japan-based ASIC leader MegaChips and global semiconductor manufacturer Renesas.

Board composition: Seasoned and highly qualified management team. Short average tenure of board members at 1.7 years could bring new strategic direction for BRN. 

Large and fast-growing addressable market: Akida architecture is flexible to address requirements for the increasing number of IoT and edge devices in consumer and industrial applications (e.g automotive, healthcare).

Expansion outside of North America: North America is BRN’s primary target market but through IP partners Renesas and MegaChips, BRN looks to enter the Japanese market and access the consumer electronics industry

Main risks highlighted:

IP risk: Current portfolio has 8 US and 1 Chinese granted patent, but BRN should continue expanding international patent filings to maintain global competitive advantage. They have 21 pending applications in the US, Europe, Canada, Japan, Korea, Australia, Mexico, Brazil and Israel. •

Reliance on key personnel: If one or more key management personnel (BoD, CTO, CDO, CFO, sales VP) leave, it could weaken company management and strategy.

Competition and new technologies: Some existing and/or potential competitors (e.g Intel, IBM) are more well-resourced than BRN which could risk future growth and development.

Future funding requirements: Operations are largely lossmaking to date, so BRN should secure additional funding to support development activities. Option agreement with LDA Capital allows BRN to access A$65M funding when necessary until December 2023.

Volatile share price: ASX has conducted both an aware and price query for BRN in October 2021 and January 2022.

Cash burn: Net operating cash flows in FY21 were US$14.2M and are expected to grow for FY22 from increased Akida production.

Market uncertainty: SNN technologies are at an early stage so there isn’t a clear dominant technology in the market

Competition: Intel and IBM are bigger companies with more resources to potentially develop neuromorphic chips with higher performance and utility, which could render Akida obsolete.

Share overhang: LDA Capital can sell the shares it owns in BRN (other than collateral shares) on the market at any time which would create sudden adverse share price movements.

Low adoption rate of Akida: Customers’ unfamiliarity with neuromorphic chips inhibits BRN’s foray into foreign markets

Also does a comparison to IBM TruNorth, Intel Loihi, Gogogle Coral TPI and 'DLAs' from Nividia.

It looks like a lot of the points were taken from Brainchip presentations though - not independent.

Thought i'd try and take a more serious go at valuing BrainChip.

It gets a lot of grief by many in the market, and really tends to divide people.

After all, this is a business with 63 employees, losing >$20m per year and barely generating any revenue, and it's being currently valued at around $2.2 BILLION by the market.

The price to sales ratio is 1400x or so!!

So it is ludicrous from that standpoint.

But, to be far, this is about the future and the company has laid a lot of groundwork in getting to where it is today.

After years of costly development, they are only now pivoting from an R&D company to a commercial one. Indeed, they are at the head of the pack, being the worlds first commercial producer of neuromorphic AI chips and the associated IP. And this is an area projected to grow significantly, offering all kinds of advantages for an increasingly connected and AI enabled world.

Production is done through manufacturing partners, and these lines have been validated and expanded to handle increased volume. The company has already sent out development kits and taking orders from OEMs.

They also license the IP to others, such as Japan's MegaChips corp, who will use the technology in its own products. Here BRN get upfront license fee and ongoing payments over the term of the multi-year agreement. Importantly, they also get royalty payments on related sales.

As such, when attempting to value this the previous years financial reports aren't especially helpful. For the record, in FY21, BRN had total operating expenses of around $21m and just $1.4m in revenues. The business has $19m in cash and in the last 4C was burning through $3.5m per quarter.

I haven't managed to find a good estimate on the addressable market, but a google search revealed that the global memory chip market was valued at $76,767 million in 2016, and is projected to reach at $247,910 million by 2023.

So let's say that this new chip has a similar sized market opportunity (it's sort of creating the market at the moment, for this specific type of chip, but we'll use this as a proxy). We'll go with a TAM for the akida chip of $100b (i could be way off here, let me know if anyone has a better estimate).

Another contrast comes from NVIDIA which today earn $46b in revenue on a massive 36% net margin.

So, for the sake of argument, let's say that the TAM for BRN in 2032 is $100b, and that it has captured 10% of this for $10b in FY32 revenue. While NVIDIA's margins are huge, ten years ago they were closer to 10-15%, so let's assume BRN are on a net margin of 10% in FY32 for a net profit of $1 billion.

Needless to say, while you can always get a higher figure on even more aggressive assumptions, this would still be an outstanding result for the business.

With 1810m shares on issue today (fully diluted), and allowing for subsequent capital raises, I'll assume a share count of 2500m. That gives an EPS of 40c. We could also assume a very high market multiple in 2032. NVIDIA is presently at 60x, so if we use that we get a 2023 target price of $24. If you discount back at 10% pa, that's a current valuation of $9.25.

Under this scenario, shares are dirt cheap at the current market price of $1.24. Although, even if things do play out like this, 10 years is a long time, and the ride will be full of twists and turns. But that's just par for the course when you invest in this kind of company.

You can also tackle the valuation question in reverse -- assuming the current market price is fair and working backwards.

Using our diluted share count estimate of 2500m SOI, the current market cap is $3.1b on a future diluted basis, and if the current price is fair we could grow this by 10%pa for a decade to get a 2032 market cap of $8b, or $3.20 per share. Compared to today's ASX listings, that would put BRN as the 55th biggest listed company.

With net margins of 10% and assuming shares trade on a PE of 40 (again, just for the sake of argument), that means the company would have $2b in revenue at that point. Put another way, that requires the company to double its revenues every year for ten years.

That's a lot of growth, but not impossible to imagine. ProMedicus is currently worth almost $5b and it only has $70m in sales -- seemingly crazy things can happen when a company demonstrates rapid industry adoption.

So, as usual, you can use whatever assumptions makes the most sense to you. But it's important to try and relate expected business outcomes with the market valuation. What this kind of analysis shows (for me) is that to buy at the current price, you need to think the company can grow sales to somewhere (roughly) in the neighbourhood of $2b in the next decade. Either that or achieve much higher margins and market multiples.

Either way, if these numbers are broadly right, you only get a decent, but not earth shattering, 10% annual return. Something you'd hope to get with a broad based ETF.

But it's certainly possible -- Afterpay went from 100m to almost $1b in revenue is just 3 years, but at the same time it's also worth noting that such examples of growth are hard to find. And putting a high conviction on this outcome requires a really good understanding of the technology, industry and an awareness of how fast things can change in this space.

So I'm not saying that Brainchip cant or wont succeed, or that the current price is unreasonable. In fact, if things go well, the price could be considered very cheap!

The other side of the coin is a future where the tech doesn't live up to expectations, or just gets trounced by another player, or is managed poorly etc etc. Maybe it goes ok, but runs on wafer thin margins. Or maybe the growth is good, but not good enough -- eg maybe it does 'only' $100m in sales by 2032. In which case, buyers at current prices could get badly burnt.

Personally i find it tough to put odds on it. Like a lot of stocks that cross my desk, i'm neither bullish or bearish, it's just in the too hard basket given what i currently understand.

So to put it crudely, for me it feels a bit like a coin flip -- Heads i could score a long-term, multi-bagger return. Tails I cop a >50% fall.

It's a fascinating company, and the technology appears genuinely significant, but i'll be watching from the side-lines for now.

I could change my mind once we see some good adoption and sales momentum. The trouble is of course, if and when that becomes obvious, i'd likely have to buy in at a much higher price. That's the thing with the market -- more certainty comes at a cost.

Apologies for the long rambling Straw -- just wanted to try some scenarios and journal my thinking.

And people say Morningstar has no sense of humor...

...photo just in of Morningstar doing their fair value estimates...

...and BRN's 4C tracker updated for the December quarter.

(By the way I'm not saying BRN won't one day actually be worth that - merely that Morningstar's FV estimate is allegedly a quantitative valuation - not technical - and I challenge anyone to show me the numbers currently support a $4b valuation).

So, I'd like to propose BRN as the latest income stock! By that I mean I'm sure most of us have been experiencing daily growth equal to our own daily/weekly/monthly or even YEARLY wages this past week in the BrainChip SP.

A bit tongue in cheek and also maybe calling a temporary high so we all have a chance to average in a bit lower than the current 12% per day increases in "valuation"...

This morning the ASX queried Brainchip regarding “any information concerning it that has not been announced to the market which, if known by some in the market, could explain the recent trading in its securities? significant recent gains in the absence of announcements.”

Brainchip response: No

ASX Q3. ‘Is there any other explanation that BRN may have for the recent trading in its securities?’

Brainchip response:

“On 4-Jan, the company announced that it had appointed a new non-executive director.

On 10-Jan the company issued a press release stating that an “Early Access Program” customer, Information Systems Laboratories, is using BrainChip technology in an artificial Intelligence-based radar research project for the Air Force Research Laboratory. Although we continuously support and engage with all of our Early Access Customers, this particular transaction is immaterial in nature and there are no ongoing commercial arrangements in place with this customer at this time. It is the company’s opinion this transaction does not qualify as an announceable event under Listing Rule 3.1.

Additionally, in recent days, there has been an increase in editorial tech media coverage regarding the operate. This coverage has grown since the completion of our chip. This increase in coverage could be a factor regarding increasing market confidence in our technology.

AI market in various market segments where we In the Company’s opinion no new material information exists that can be announced.”

Disc: not held

I've only taken a brief look at Brainchip, so I don't really have too much value to add. It certainly has the potential to be revolutionary, but I feel the valuation has pulled too far ahead of progress, without any meaningful revenue or profits to hold up the foundations. As a story-stock, it is outside my investment realm, but I can definitely see the attraction and it obviously has drawn a massive following of retail investors. Sentiment will probably continue to be a big driver of the valuation in the short term until investors can value the company on expected cashflows. 

It is difficult to put a valuation on the stock given that it is speculative and that the time to market and the likelihood of the product being viable is unknown. Although it is difficult to estimate the magnitude of revenue or EBITDA that could be realistic, as a rough back of the envelope calculation, one could assume that BRN achieves $100M EBITDA in 5 years in a bull case scenario (just to put some numbers to an example). On a 30x EBITDA multiple to reflect the high growth industry that they operate in, you could arrive at a $3B valuation compared to $1B today, but those figures could be completely off the mark. It is also difficult to ascribe a percentage likelihood to that scenario versus the spectrum of alternatives (base case and bear case) and then discount that back to today's dollars. 

BRN is in the "Strawman Index" and there seems to be a lot of hype around it. Some people are pushing sky-high valuations but no one is justifying it with calculations, yet. The minority is claiming that BRN is ridiculously overvalued but fully admit, like me, that BRN is outside my circle of competence. I personally think the risks are weighted more heavily to the downside than to the upside at this stage, but I could be completely off the mark, and credit to those who have ridden it up successfully and been on the right side of the trend/momentum! 

From a charting perspective, there might be a lot of resistance to churn through from 65c up to $1, based on the large upper wick of the candle from the week of the 7th Sept 2020. At that point a lot of distribution took place. On the flip side, from a TA perspective, one could argue that the pattern being formed is somewhat similar to an ascending triangle with the resistance around 70c, which would be a bullish sign and sugest a breakout. Difficult one to pick either way. I'm certainly not buying in at today's price.

On 30 Aug, Auzbiz reviewed BRN @40:50

Guest reviewers were Gaurav Sodhi from Intelligent Investor and Mathan Somasundaram from Deep Data Analytics.

What I heard them say?

Mathan described it as a meme stock, but also acknowledged its blue sky potential and all the risks that come with such potential.

Gaurav was even less positive, using the term "stupidity" if someone invests. But to his credit, he thought also implied that this stock is outside of his circle-of-competence. I also considered the investing style at Intelligent Investor in his response, and for those that don't know, it is comparatively quite conservative (which is their choice - no judgement!).

This will sound defensive, but it’s meant be factual. I also heard some inaccuracies about BRN, such that it has no product, which was true until recently. Which says to me, just because we see talking heads that are the "professionals" as Gaurav says, we should not blindly trust them, but use them as an avenue for ideas, a opposite opinion, or a confirmation bias of our own research.

Hey ag11,

I really respect the depth of research you have put into Brainchip BUT I can't help but notice that whenever anyone puts up a post about it that is in any way less than giddy you feel the need to immediately jump to its defence.  This is going to be a pretty boring forum if we're all in a circle holding hands singing Kum-By-Yah with one voice.  

The first observation I'd make is that at the time of writing BRN is 7th on Strawman's list of top companies so I kind of reject the premise of the argument that you're getting ganged up on that basis alone.  Second, if you invested when you started posting about it you're already miles ahead so light a cigar, pour a brandy, sit down on the rocking chair and pity those fundies, analysts, experts and retail investors like me who have missed the ride! 

In this case you've responded to a post sharing a link and summary of some stocks that featured on a Buy Hold Sell, including BRN, that are commonly discussed on Strawman.  I actually didn't give an opinion on BRN.  However, my opinion is that I couldn't tell a Nueromorphic chip from a Salt and Vinegar chip.  If I could I couldn't say that Nueromorphic computing will be THE winning technology.  If I could I couldn't say that Brainchip will be dominant force in that technology.  All of that is the reason that - for me - if I held it I would be selling it.  However, you have done the work, you've put in the research to the point that you're comfortable with risk-adjusted return to make the decision to invest and hold.  That's great - I hope you are right because if you are this thing will go off like a frog in a sock and you'll make a mint.  But this isn't a zero sum game - you and those like me who have chosen not to invest through ignorance can both be right.  Regardless of what the share price does from here I'm right not to invest because if I did it would just be a bet and even if BRN turned out to be a bet I won there would be enough losers to more than offset this.

The other thing I notice you said is that it isn't a recommendation.  You see that over on Hot Copper a lot and rarely on Strawman.  I think it's because on Strawman people get that what is posted doesn't take into account their financial situation, risk tolerance, investment style etc. without it needing to be said.  That's one of the things I like about Strawman.

Anyway, as I said I genuinely hope we are both right!

Speaking of learning from everything and everyone I learnt a new analyst recommendation term.  In today's LiveWire Buy-Hold-Sell Marcus Burns described Brainchip (BRN) as a 'screaming sell'.  In contrast Chris Stott sounded almost bullish by describing it as merely 'definitely a sell'.  

They weren't having a bar of it being a Friday fun one either with EML Payments and Tesserent not getting a lot of love either.  For their homework they Chris brought in Maxitrans (which I've looked at before and think is close to fair value) and Marcus brought in Frontier Digital (whose sell off does look overdone, although I find their financials somewhat complicated).

https://www.livewiremarkets.com/wires/buy-hold-sell-3-fan-favourites-and-2-stocks-on-the-rise