The Alphawave share price: opportunity or trap?

The Alphawave share price has plunged after an attack on the company. Rupert Hargreaves explores if this is an opportunity for him.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Alphawave (LSE: AWE) share price was cut in half yesterday after the Financial Times published a scathing report on the company

The newspaper highlighted the fact that the majority of the company’s sales come from related parties. In particular, it noted that the group’s chair and co-founder, John Lofton Holt, is also the chair and founder of another semiconductor corporation called Achronix. This privately-held California business was a significant customer of Alphawave before the company’s IPO. 

According to the FT’s report, for the 12 months to May 2019, 90% of the semiconductor group’s revenue came from a “company on which a director is the chair of the board.” 

The report contained other conflict of interest claims as well. It noted that the group had failed to disclose close ties with one of its new customers, Chinese firm VeriSilicon. This company’s chairman, Wayne Dai, is the brother-in-law of Alphawave executive director Sehat Sutardja.

For its part, Alphawave has said that “all related party transactions have been properly disclosed.

Unfortunately, it looks as if the market has already made its mind up about the business.

Alphawave share price plunge

When Alphawave hit the market in the first half of this year, many analysts compared the group to former UK market darling ARM.

There are some similarities. Both companies help semiconductor manufacturers by licensing their microchip technology to developers. This business model is both highly profitable and flexible. And Alphawave seemed to have been firing on all cylinders until this report was released.

According to its latest trading update, bookings rose 490% in the first half of 2021. However, as it now turns out, VeriSilicon and another Chinese firm were responsible for virtually all of this growth. 

On the face of it, this isn’t that unusual. It’s relatively common for tech companies to share directors. It’s also reasonably common for tech firms to work with each other to build their business. As such, the recent sell-off of the Alphawave share price could be an overreaction. 

On the other hand, it does bring back memories of other London-listed companies which have inflated revenues to try and boost their valuations. I’m not saying this is what the organisation’s been doing. There’s no evidence to support that claim at the moment. It just may be the case that the market is making this association. 

Waiting for further information 

In these situations, where an outside source attacks a company, I think it’s best to wait for the corporation to provide evidence to counter claims. Until they do, investors are in the dark. As I noted above, the group’s already said it’s reported all related party transactions as required. But the market may need more convincing. 

As such, I don’t think the Alphawave share price is an opportunity or a trap after its recent declines. I think the market needs more information before making this kind of decision. That’s why I’d remain on the sidelines for the time being. I wouldn’t buy the stock today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »