It’s been a couple of months since I wrote last about microcaps exploding on mindless bidding by retailers. The trend of the market remains up, but a general absence of strong leading stocks paired with signs of exuberance increases the risk this market advance poses incrementally.
At the height of the dot.com bubble, a sign of the market getting overheated was the appearance of stock blow-offs in IPO’s, very low-priced- and/or microcap stocks of companies that had little proof of business acumen. Now, we are far from seeing many tech IPO’s launching into the marketplace – which of course has already happened sufficiently in 2020-2021 – but we are seeing a lot of exuberant action that reminds me of meme stocks in 2021. Take the IPO ARM’s explosion of 115% in 3 days – a great stock and a great move – but too much of a good thing in too short of a time, and problems tend to appear.
Another one of those “investment” events is taking shape right now. The little up-until-3-days-ago penny stock BMR, a developer of video encoding codecs, has announced partnership with the AI FOMO Mac Daddy firm NVDA, leading to its stock price to explode a ludicrous 1600% in a single day, temporarily growing its market cap by a factor of 30x. The company remains non-profitable, and the market had decided it was a not worth noting (trading between 1-2$ since it’s IPO at 3$ in February last year) until it’s recent association with NVDA.
The move of course fell apart in the same day, dipping as much as 71% intra-day. There is no buying of substance supporting this move, at least so far, except the FOMO retailer jumping at anything that their pope Jensen Huang christens holy. Extreme volatility, erratic trading character and lack of support makes this play extremely high risk.
Don’t get me wrong – speculation is good. Of course it is, because the stock market is fundamentally based on it. But there are different kinds of speculation, for example the type of getting in front of large institutional funds slowly accumulating stock of a novel growth company to distribute it later vs. the type of retailers blowing up a microcap just because it’s management is throwing around the buzzwords of the day.
If you were an institution that had underwritten stock of a small no-name tech company, and you saw an opportunity to take profits of hundreds to thousands of percent in a day, wouldn’t you take it? Well, the answer is yes for almost anyone in the business, provided sufficient liquidity is present. Which it was – volume spiked by about 4000% and 1000% on Feb 12 & 13, respectively, trading each 154M & 48M shares on those days. Enough to get out of a rather sizable position, even more so given that BMR only sports a limited pool of roughly 13M shares outstanding. High turnover = high liquidity for inside holders to get out with a fat profit, and by ‘insiders’ I don’t mean management, but the smart money.
Even better of course, let the management capitalize as well on the move. Beamr immediately announced a public offering worth $12M during this time of saintliness. Might as well, before it’s over, right?
Beamr itself aims to license their codecs to large companies involved with ‘anything video’, including Netflix, Microsoft, Vimeo, Citrix, and even Walmart. Though their products, video compression codecs, are incremental improvements to what existed before, that is really all they are – incremental improvements of something already there. Like making a car engine 0.5% more energy efficient. They are nothing you would call novel. Beamr has generally floundered due to the company’s chronic lack of innovation, leaving it trailing far behind competitors in the tech sector. Despite initial promises of groundbreaking solutions, Beamr’s product line remains stagnant, failing to evolve with the rapidly changing market.
And that is another reason that suggests there is nothing of substance behind this move other than retail investor FOMO, which would be adding to the signs that this market continues to overheat on AI sentiment and is due for a correction at the very least. The only positive thing I can say at this point is that is it not a SPAC, which is setting the bar incredibly low …
Until a few months back, the slogan was “slap an ‘AI’ on it, and it will rally”. Right now, that wording seems to change to “slap an ‘Nvidia’ on it”.
