MicroVision (NASDAQ:MVIS) stock has jumped another 42% this week as retail investors continue to pump the stock on social media. MVIS stock is now up 200% since the beginning of 2023.
To meme stock investors, the investment thesis here is obvious. MicroVision is a self-proclaimed leader in high-performance lidar sensors and the rise of self-driving vehicles will jumpstart demand for the technology. If Nvidia (NASDAQ:NVDA) can become a trillion-dollar company by helping artificial intelligence (AI) applications “think,” why can’t MicroVision do the same by enabling them to “see?”
Such comparisons, however, fall short of the mark. A deeper look into MicroVision’s technology reveals a struggling firm that’s falling further behind. A cash shortage will also necessitate fundraising by 2025.
Although MVIS shares will likely keep going up in the short term, long-term investors are better off finding an AI stock with stronger prospects.
MicroVision Stock: A Meme in the Making
In May, InvestorPlace writer Samuel O’Brient noted that Microvision had been “surging all month with no real catalysts.”
“The biggest short squeeze of the season may already be upon us […] interest from retail investors has been rising steadily.”
Since then, MVIS stock has risen another 80% as of this writing, topping off an already incredible run. Earlier this week, InvestorPlace’s Shrey Dua also noted that no MicroVision shares were available to short, per Fintel’s sample brokerage.
The data tells us that investors should expect gains, at least in the short term. The company now scores an “A” for momentum in my quantitative Profit & Protection, a historically bullish signal. Wall Street analysts have revised their earnings estimates up 7.5% in the past 30 days as well, suggesting greater gains ahead. Street analysts expect MicroVision to break even by 2025.
MicroVision also has hype in its sails. Interest in self-driving technologies like Tesla’s (NASDAQ:TSLA) Autopilot has been steadily rising since 2020 and the recent success of OpenAI’s ChatGPT has put AI publicity into hyperdrive. According to data from Thomson Reuters, companies that mention the term “artificial intelligence” in their description have significantly outperformed this year.
Don’t Bet the Farm on MicroVision…
A deeper look into MicroVision reveals significant issues, however.
1. Downstream Competition
MicroVision and its rivals have been rocked by competition from Mobileye’s (NASDAQ:MBLY) in-house lidar systems. Here’s from Mobileye in 2021:
“If autonomous vehicles are to take over complete control from human drivers, they’ll require multiple types of sensors working in parallel […] But we soon found that the existing detection-and-ranging sensors on the market still leave much to be desired. That’s why we’re developing our own.”
Mobileye has since become the dominant lidar supplier. In 2022, the Israel-based company generated $1.9 billion in revenues and poured almost $800 million into research and development (R&D), thanks to its success in advanced driver assistance solutions (ADAS). This strong revenue base means Mobileye easily outspends MicroVision ($30 million) and Ouster (NYSE:OUST) ($64 million). Only Luminar’s (NASDAQ:LAZR) $185 million R&D budget comes close.
2. Too Many Technologies, Too Little Cash
MicroVision has legacy baggage from its micro-display technologies and head-mounted augmented reality (AR) headsets. The meme stock now has a product suite that includes short- and mid-range lidar sensors, two different sensing systems and a validation software tool to replace manual data classification. MicroVision further weighed itself down earlier this year by acquiring Ibeo Automotive Systems, a German lidar maker that required a significant cash infusion.
That suggests MicroVision’s R&D spending isn’t particularly efficient. When investors see a company chasing too many technologies, it often signals that management is spreading bets too thinly.
The company has already spent $76 million of the $126 million it raised in 2021. At current cash burn rates, its liquidity could run out by 2025.
Usually not a metric to advertise
Source: 2023 MicroVision Investor Presentation
3. No Revenue Momentum
MicroVision has a chicken-and-egg problem where new clients find the firm unattractive for its lack of current customers. Per MicroVision’s most recent annual report:
“We have been unable to secure the customers at the scale needed to successfully launch our products. We have incurred substantial losses since inception, and we expect to incur a significant loss during the fiscal year ending December 31, 2023.”
In other words, no Tier 1 automaker has been willing to roll the dice on MicroVision. New vehicle models can take years to develop and millions of dollars to bring to market, making established firms like Luminar and Mobileye far more attractive.
…But Avoid Unhedged Short-Selling
Recent history tells us that retail investors tend to buy stocks without regard for the fundamentals and can send shares up 5X… 10X… 50X on no news. Companies like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) still trade anywhere from 120% to 400% of their historical valuations, depending on the metric used.
MicroVision is also a potential takeover target. Most Tier 1 automotive suppliers lack lidar technologies of their own and MicroVision’s base models might seem like a tempting bolt-on acquisition. The 2022 merger between Ouster and Velodyne shows the potential for market consolidation.
That means traders should approach short-selling MVIS stock with care. An unhedged position could easily blow up a portfolio if shares rise 2X overnight. And even hedged positions will cost a great deal to maintain. According to data from Fintel, MicroVision’s short borrow fee rate tops 70%.
Still, the options market tells us that institutional investors remain skeptical of retail bullishness. Implied volatility for put options expiring in January 2024 sits at 130%, far higher than the roughly 80% implied volatility for call options. And a look into the company’s R&D efforts reveals a money-burning company with little to show.
Be careful of betting on MicroVision. Despite its recent rise, MVIS stock remains a longshot bet.
As of this writing, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
