Weebit Nano slumps 30% overnight - the chips are down

Weebit Nano (ASX: WBT) shares are down 20% and more overnight on the Australian market. This is after their run up of some 100% over the past 12 months. There's no particular news to justify this latest fall, it could just be some profit taking. However, turnover is by local standards fairly large in the stock ($26 million today) so it's more than just some marginal effect of a few people doing the one thing or the other.

The story here is of a change in sentiment about Weebit. It's inherent in fact in the manner in which it is currently revenue free. Yes, of course it's wondrous to be the possessor of a new technology that's going to sweep the world. Or may do, or perhaps might not of course. But when all of the value is in what might happen and absolutely none in what is currently happening then the share price is highly leveraged to even slight changes in that view of the future. 

Weebut Nano share price from Market Index

Weebit develops designs for resistive RAM. This is then incorporated into designs for highly integrated products at ultra-low power. The ability to use this technology is something that needs to be rolled out foundry by foundry. That is, a chip or chipset designer needs to first incorporate the technology into the design, then get the chips actually made by one of Weebit's specific partners.

The economic model here is similar to that of the highly successful ARM. But the limitation with such a model is always that everything depends upon the if. If the technology takes off into general use then the revenue stream from licensing is hugely profitable. If the tech doen;t fully take off into general use then the revenue won't cover the development costs. It's an all or bust sort of economic model. 

Weebit Nano reports no revenue at all in its latest accounts. That's fine, we all know what the model is, that this will eat capital until fully deployed. But the effect of that is that all we need for large movements in the share price is a marginal change in views on corporate prospects. Simply because everything is leveraged to views of future market penetration. Change those views even mildly and the net present value calculation moves immensely. 

Until actual revenue generation Weebit Nano shares are going to be inherently volatile.