Penny Stock’s 1,500% Jump Fueled by Reddit Left CEO Dumbfounded

(Bloomberg) -- A meteoric rally in an Australian penny stock is fast unraveling after confounding not just market watchers but also the company’s CEO.

BrainChip Holdings Ltd., an artificial intelligence-focused startup whose flagship product is yet to be made widely available for commercial use, saw its 2020 gains propel to 1,500% earlier this month. While concerns about overheating have seen the stock getting hammered since, its current year-to-date advance of almost 700% still makes for one of the best performances among technology names in Asia Pacific, according to data compiled by Bloomberg.

“I was surprised about the peak,” Louis DiNardo, BrainChip’s chief executive officer, said in an interview. “Shares were overbought for a company that’s just introducing its product.”

BrainChip is one in a long list of global technology stocks that have surged this year as the pandemic put investor spotlight on companies focused on technological innovation. The firm is developing a processor, Akida, that can be used for edge computing -- which involves handling complex AI and machine-learning tasks at the so-called edge of the network instead of sending data back and forth to servers.

Shares have skyrocketed as the company signed a slew of partnerships over the past few months, including an agreement with Ford Motor Co. in May for the evaluation of the Akida chip. Texas-based Vorago Technologies this month agreed to participate in its “early access program” which allows select few to test new features and give feedback before a device is rolled out to customers as a whole.

‘Bubble Forming’

Jun Bei Liu, a portfolio manager at Tribeca Investment Partners Pty in Sydney, isn’t surprised by the sharp correction in the share price, which she says reached astronomical levels after retail investors hyped the stock on online forums such as Reddit.

Brainchip has seen multiple discussion threads on company’s business outlook and stock moves over the past few months on the Reddit website.

“Yoloed into it cause of a comment I saw here a few weeks ago and now it’s up 36% today. Thank you for the DD kind stranger,” wrote one of the users on Reddit some three months ago. (Yolo is short for you only live once, and DD for due diligence.)

BrainChip generated $13,397 in revenues in the six months ended June 30, versus $66,635 for the same period in 2019, according to its website.

The stock slumped as much as 10.5% on Tuesday, before finishing 8.6% lower at its weakest closing level since Sept. 1. Volume surged to about 139% of its three-month average.

‘Very Real’

But there are some who are optimistic about the firm’s future prospects.

“The potential for this technology to take off longer-term is very real because it addresses a number of issues in edge computing,” said Marc Kennis, managing director at Pitt Street Research Pty, who says BrainChip’s stock is fairly valued. “The next leg up will be determined by commercial progress,” he said, adding that it’s possible for the stock to get back to its peak.

BrainChip’s processor can be used in applications for homes, transportation, health and the industrial sector, DiNardo said, adding that the company plans to commercialize it in Japan, the U.S., Europe and Australia.

©2020 Bloomberg L.P.