Why Is BrainChip (BRN) Share Price Falling?

By Jason McIntosh | 10 January 2025

BrainChip Holdings Ltd (ASX: BRN) has been felling this week, and investors have been asking why the share price tumbled over 19.5%, closing at 33.5 cents. The sell-off came on the heels of a major funding announcement, leaving some to wonder: Is this the start of a deeper downturn, or just a natural pullback?

Let’s break it down.

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Why BrainChip Fell

The primary driver behind this week’s decline appears to be BrainChip’s announcement of an expanded funding arrangement. The company has entered into a put option agreement with LDA Capital, increasing its total funding by $37 million to $140 million.

While additional funding can be a positive signal of future growth potential, it’s also often interpreted as a sign that a company anticipates further cash burn or slower-than-expected revenue generation. For investors, this raises concerns about dilution and operational sustainability in the near term.

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Putting the Decline in Perspective

On the surface, a 19.5% drop might seem alarming. However, context is essential.

BrainChip’s stock surged over 80% from mid-December, fueled by renewed investor enthusiasm and positive momentum. Following such a significant rally, a pullback isn’t unusual — especially when the share price becomes stretched above key technical indicators, like its 50-day moving average.

In fact, as of now, BrainChip remains above its rising 50- and 100-day moving averages. From a technical analysis perspective, this could indicate the early stages of a potential upward trend. Pullbacks like the one seen this week are often part of a healthy consolidation process, allowing the market to absorb recent gains before potentially resuming higher.

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What Does This Mean for Investors?

While no one can see the future, it’s important to avoid getting carried away by headline-driven declines. Instead, focus on the underlying price action. BrainChip’s ability to stay above its rising moving averages suggests that the overall trend may still be intact.

For investors, this is a time to:

• Monitor Technical Levels: Key support zones, such as the 50- and 100-day moving averages, will be crucial in determining whether the trend remains bullish.
• Stay Disciplined: If you’re already holding the stock, a well-defined risk management strategy, such as a trailing stop loss, can help protect capital if the trend reverses.
• Consider the Bigger Picture: Understand the company’s funding needs and future growth potential. While the additional funding raises concerns, it may also provide the resources BrainChip needs to drive innovation and expand its market presence.

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Professional Approach to Managing Risk

Many professional investors emphasise the importance of a systematic, rules-based approach to investing. Key to this strategy is risk management — particularly the use of trailing stop losses. These tools help investors protect capital when a trend reverses while allowing them to maximize gains when a trend extends higher.

For BrainChip, the recent price action highlights the importance of staying adaptable. Stocks in emerging trends often experience volatility, and having a plan for both upside and downside scenarios is critical.

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Final Thoughts

BrainChip’s 19.5% decline this week has certainly caught the market’s attention. However, when viewed in the context of its recent 80% rally and its position relative to rising moving averages, this pullback may simply be part of a broader consolidation phase.

As always, staying disciplined and focused on the underlying price action—not just the headlines — can help investors navigate periods of uncertainty with greater confidence.

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Jason McIntosh | Founder, Motion Trader

Jason’s professional trading career began over 3 decades ago. He’s a founder of two stock advisory firms, a listed funds management business, and has helped thousands of investors navigate the stock market. Click here to read Jason’s incredible story of, at age 20, sitting alongside some of the world’s greatest traders (and the life changing experience that came with that).