AI-chip developer BrainChip Holdings Ltd [ASX:BRN] share price was in the red today.
The BRN Share Price is currently down 6.17% and falling at time of writing. A move that has been kicked off due to management’s decision to issue a capital call.
Let’s investigate why investors are reacting so poorly to the news…
Topping up for future growth
As BrainChip outlines in today’s announcement, they have issued a capital call to LDA Capital Limited. Requiring them to follow through on their Put Option Agreement to subscribe for up to 8.75 million shares.
This equates to roughly $34.2 million in capital that BrainChip can draw from. However, at the moment, the only commitment is for a minimum of $9.2 million by 22 October.
So, it seems likely that BrainChip will only utilise a portion of this option agreement. Saving the rest for a later date.
Despite this, the negative reaction is almost certainly due to the implication of their ‘need’ for cash. Because despite having roughly US$17.7 million cash on hand as of 30 June, management has decided to rely on this capital call for more.
As for why, well, here is what they had to say:
‘The proceeds raised from the capital call will be used to strengthen the Company’s balance sheet and is intended to support ongoing efforts to commercialize the company’s groundbreaking Akida technology.
‘Proceeds will also be used to strengthen the sales & marketing team in anticipation of the launch of Akida later this year, as well as increased focus on customer engagement and investor relations activities in Australia, the US and Europe.’
This progress is obviously what shareholders are after, but the fact that BrainChip may need more funds to make it happen may have spooked some investors — perhaps causing them concern as to the capital requirements that will be needed to get Akida to market.
As for whether this concern and share price pressure is warranted, only time will tell.
But, suffice to say, it hasn’t been met warmly by the market today.
What’s next for the BrainChip Share Price ?
Clearly, as management notes themselves, the focus now has to be a successful launch of Akida.
The company and its investors need to see this chip make a strong debut. Winning over customers and bringing in revenue to put BrainChip on the pathway to being cash flow positive.
Whether reality will line up with this plan, though, is the ultimate question.
One that investors will need to ask themselves before committing any further to this stock.
If, however, you’re looking for other AI investing opportunities, well, BrainChip isn’t your only option. We’ve put together an entire report, including five AI stocks to look out for to keep investors like yourself up to speed on this emerging industry.
So, to learn more, access the full report for yourself right here.
For Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here