Stocks In Focus: Brainchip, August 20 2025

0:01A listener production.

0:10G'day fools, I'm Scott Phillips, the Motley Fool's Chief Investment Officer here in Australia, and welcome to another Motley Fool's Stocks in Focus, the series that we publish both on the Motley Fool Money podcast, so g'day if you're listening there, and our YouTube channel, and g'day if you're watching it there. Of course, if you're looking for either, you can simply Google Motley Fool Money, use your podcast player of choice, or go to youtube.com forward slash foolau. You can subscribe, like, hit the notification bell, all the cool things you're supposed to do because we've got some great stuff on both feeds.

0:39The podcast feed, three episodes a week. Over on YouTube, we've got Stocks in Focus, Stock of the Month, what I've been reading, occasional Motley Fool TVs, lots of good stuff. Q &A, we'll do Facebook Live, YouTube Live soon, so stay tuned for that one as well. Hey, let's move on then to the topic of this particular episode and that is, well, I'll tell you in a second, But first, I'll introduce you to our Motley Fool analyst, Mitch Lawler. Mitch, g'day. How's it going, Scott? Mate, I'm very well. You have absolutely taken up the cudgels here, mate, can I say? And with no regard for your own personal safety, I know what it's like to have mentioned this company called BrainChip.

1:14It certainly gets some interest among investors, certainly gets some heated debate and discussion. So, mate, firstly, thank you for talking about BrainChip. BRN is the code if you're playing along at home. So let's start by asking you what BrainChip is and what it does. Yeah, BrainChip is, they sort of dub themselves as a neuromorphic chip business or developer. And what that really means is that they're trying to, or the design that they're mimicking is inspired by the brain and to be used in AI applications, so on-edge AI, which is basically just a fancy way of saying instead of going to the cloud for AI, which we're accustomed to these days, it is all processed locally on the chip itself.

2:10So BrainChip has been working for many years. The company was founded in 2004, I believe, by Peter Vandermeid, who actually had a stint at IBM as a chief scientist back then. And they've been working on this concept of spiking neural networks, which is a new take on the traditional way of AI neural networks, which basically tries to only process information when it actually detects a change, some sort of input. And the thinking behind that is to make something much more energy efficient by orders of magnitude so that it's well adapted for AI applications where it might be a very low power use case.

3:03It's also privacy in defense applications where you may not want to actually send out the data to the cloud and be able to process that on board. It's a cool idea originally. It's even cooler now, I think, to your point. It's been 21 years in the making, but you're right. The kind of arrival of AI, we're using it at the Motley Fool already, but we're being very careful at how we're using it, what information we're sending to those particular LLMs in terms of what do we want them to know about us? Do we want them using our queries and our responses as training data? Generally speaking, no, because we have proprietary information.

3:37It's all about how we pick stocks and the stocks we're recommending and the way we're marketing, all that stuff that's kind of proprietary. You don't want that necessarily in the public domain. You don't want it in the cloud. Then you can have those kind of private sandboxes, and we're using those at the full. But the idea of being able to do it on the chip itself, got to have plenty of potential application if it can be done, if it can be done well. So I get why they're trying to do this. Let's then go to the investment case. As we say regularly, there's the company and there's the investment.

4:03Sometimes they're both good. Sometimes they're both bad. Sometimes it's a mixed bunch. But let's talk about the investment itself. And I'll ask you, Mitch, to give us the pros, why people might want to think about investing in Brainship, and then the cons, why they might not want to, or things to keep in mind before they do. So let's start with that. Let's start with the pros. If you're going to make a case for investing in Brainship shares, mate, what would you say? I think to start with on the pros is that it is very much, you know, AIA is a hot topic. We know that it's everywhere. It's probably only going to become more prolific within our lives in the ways that we use it.

4:39And so having an iron in that fire, I think, lends brain chip to a lot of upside if it can actually commercialize its product. And so its product, which is the Akita platform that it's developed, has that potential where they have benchmarked it against competitive offerings. And it has been able to provide a high level of accuracy at much lower energy requirements. So there is the possibility that if this gets to the point where they do commercialize, they can find customers who want to implement it and they sort of market this as autonomous vehicles are maybe likely customers, maybe even our cochlear implants, the likes of those applications would make ideal customers where we want the AI.

5:44to be able to process information, but we need it to be low power requirements. So if they're able to commercialize, there's a lot of potential there, but it's a big if. And that's where it all sort of hangs in the balance. I think that's where there's a lot of uncertainty. They have a lot of partnerships already with some big defense contractors, some foundry, you know, fabrications that are integrating its technology system on a chip design. But a lot of that is still in the pilot stage. They're not commercial contracts. We're talking several hundred thousand dollars or maybe a million dollar contracts there.

6:28And they're not at the level where it's meaningful revenues yet. It's a huge, huge, huge potential, but obviously a bit of a distance between here and there. You get more people who are excited about it though, right? Because if this does to take off. Look at the Mutt Cup NVIDIA, the largest chip maker in the world now by a long, long shot. If they can get anything, I mean a fraction of that, right? They're off to the races. So I get why people are a bit excited about it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

7:00Let's go to the con side then. Let's think about either why you wouldn't or shouldn't buy shares or maybe just even just the things to think about. When we're at the Motley Fool and give recommendations to our members, we say, look, Here's why we like a company, but here's what you should keep your eye on. Now, Stocks in Focus isn't that, by the way. We're not going to make a recommendation today, but we can't keep the same idea. There are some good stuff about companies with our recommendations. They're overwhelmingly good. That's why we recommend them. But with this one, we're just trying to say, look, look at both sides of the coin.

7:23So let's turn that coin over, Mitch. What are some of the cons that you'd consider about investing in Brainship? So I would say the biggest sort of negative hanging over the business at the moment is that it hasn't reached the distribution necessary to really gain traction yet. And I mean, that's the horse and the cart, the chicken and the egg sort of problem is when you have a great product, great technology, it's all fine and well, but you've got to actually get traction first. You've got to get it implemented. And it's very difficult in this market. The market that it operates, I mean, as you mentioned, NVIDIA, there are a lot of moats in place.

8:07For example, with NVIDIA, they have their CUDA developer platform. And what that means is for developers who want to actually build with that technology, NVIDIA, they're accustomed to the CUDA developer platform. They learn how to program on it throughout university and then within their career. And BrainChip has developed their own offerings, open source and different means to sort of allow developers to get on board with different toolkits. But it is very difficult to sort of get that user base well-equipped, well-adapted to this new technology to get the distribution and to get the adoption.

8:56Secondly, I think, too, is there is still a lot of competition within this Edge AI offering. NVIDIA has, I was watching a YouTube video last night of NVIDIA's Jetson Oren Nano Super, which is basically a$250 mini computer that allows the exact same thing. It's Edge AI that BrainChip has developed as well. But the difference is the neural network that it applies. A brain chip applies this spiking neural network to lower the energy inputs, whereas NVIDIA uses more traditional methods. So you still have a higher energy input. And I suppose that is the crux of the challenge for brain chip is a lot of customers are happy enough.

9:50You know, it's good enough. The current technology is good enough. So I think that is the risk that if there isn't a use case that pushes the need for this magnitude of reduction in energy input, then it may be a great technology that will find itself in a museum rather than a product. And that's the risk, right? And this is – it kind of puts them – a bit like a new biopharmaceutical company with a hopeful breakthrough drug or a miner who's trying to find something. If you get it right, if you become the next Cochlear, the next CSL, the next Fortescue, I own shares of Fortescue for the record, then you're off to the races.

10:27But the number of companies who want to be the next insert company here and don't get there is Legion. And that's why these things are so difficult. Even if you've got something you think is great, maybe you don't ever get to market. Maybe you get to market after someone else. Maybe your product ends up being more expensive. Maybe it ends up just being slightly less applicable. or as you say, it just doesn't work in with the ecosystems that have already been built and designed, or maybe it does. So I guess that's the question I'm going to ask you now, Mitch. As I said, it's not a formal recommendation, but let's put the crystal ball out on the table and have a look five plus years out.

10:59Now, we're long-term investors at The Motley Fool. Hopefully our listeners and viewers know that. If you didn't, you do now. And long-term, by the way, isn't 12 months, despite what the so-called long-term capital gains tax kicks in. Your long-term is at least five years now for you. So, mate, put that crystal ball to work for me. maybe mentally use a brain chip chip and try and work out for me. Is this likely, do you reckon, to be a market-beating investment from today, or is it likely to lag the market, do you think? I will say, first of all, that it definitely is. There's a lot of good things behind it.

11:32There's a lot to like. There's a lot of patents, over 50 patents. We can also see that the requirement for energy is growing rapidly with AI. I think the recent analysis that I saw in Australia is 5 % of all of our electricity consumption is now from data centres and is projected to be about 8 % by 2030. So we can definitely see that maybe there is a need or a requirement for lower intensive energy requirements from AI in the future. But in saying that, at the same time, we're talking a company that is still largely pre-revenue, pre-products that is at the commercial stage. It is burning through cash because of that, the need to raise capital on an ongoing basis.

12:25It definitely puts it in a high-risk category, a very speculative investment. for that reason I would tend to say that more than likely I would think it would outperform sorry underperform over the long term because of that risk there that if it is able to commercialize this product and find that niche and and scale it certainly there's a lot of potential there but it's it's almost I won't say as risky as as buying a lottery ticket but it's it's sort of definitely leaning more towards that end of the spectrum. Yeah, it might not be a lot. I called a lottery ticket once, mate. I got lots of grief on social media for months.

13:07But it's that kind of idea, right? There is a pretty good chance nothing comes of it. And it's pretty binary too. It's unlikely they're going to be modestly successful. They've got a thing or they don't. If they've got a thing, that thing is going to be huge probably. If they don't have a thing, probably nothing left or at least not much. Maybe something happens. But it is in that realm of speculation, as you say. So you're right. There's a chance that you get a lottery ticket type win. and that's why people want to flock to this and go, man, the dollar signs light up in their eyes. If I could just make it, if this is, you know, in the next NVIDIA, then look how much money I could make.

13:34That is such a seductive idea. Probably, as I said before, is that most, almost all businesses that want to be that ever are. So it makes it very, very difficult to pick winners in this space. Even if you love the technology, even if you love the product, even if you're a true believer, it's a long jump between there and all those hurdles it needs to cross to be a commercial success and a share market success as well. Mitch, thank you for sharing your thoughts on Brainship. Certainly one for the, well, the true believers love it. Most of us are skeptical, just not of the company, nothing untoward, just, hey, who knows what happens next.

14:03But if you're a brain chip aficionado, then hopefully you've enjoyed this coverage. If you're not, well, now you know a little bit more about brain chip and about the company. Mitch, thank you for sharing. Another reminder, please do like, subscribe and hit the notification bell if you're on YouTube. If you're on the podcast, you probably already subscribed to the feed, but if you're not, do that. And by the way, cross over. If you're on the YouTube feed, go and have a look at the podcast. If you're on the podcast feed, come over to YouTube and have a look at the other good stuff we've got on The Motley Fool Australia's YouTube channel.

14:28All right. Thanks for listening. Thanks for watching. And until we speak again, Fool on. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.