Last week was pretty rough for the Alphawave IP (LSE:AWE) share price. The semiconductor chip business watched its stock crash by over 50% following accusations from the Financial Times regarding the lack of certain disclosures in its IPO prospectus. The stock has since started recovering, as many investors see the crash as a buying opportunity. But is there reason to be concerned? Let’s take a closer look.
What does this business do?
Alphawave IP is a designer of high-performance semiconductor chips used throughout data centres, electric vehicles, and a host of other appliances.
It has been a relatively unknown company for a long time. But its technology is quite impressive, with chip-transistors getting as tiny as five nanometres. To try and put that into perspective, it’s nearly 1,200 times smaller than a red blood cell. And the company is already working on a four-nanometre version with promising initial results.
Why does this matter? The smaller the transistors, the more space to add additional modules onto the chips, granting even more processing power. And in an industry with fierce competition coming from the likes of Samsung, having a technological advantage is critical to attracting new customers.
Semiconductor chips have become a crucial aspect of most modern technology. So, I can see why investors believe the AWE share price has enormous long-term growth potential.
The crashing share price
As previously stated, the Financial Times released a fairly damming article about the company. Specifically, it flagged the firm’s close links to Chinese corporation VeriSilicon that weren’t disclosed in the prospectus or the recently published interim results. This has drawn particular attention since the chairman of VeriSilicon, Wayne Dai, is the brother-in-law of Sehat Sutardja — an executive director of Alphawave.
UK law says related parties to a public business must be disclosed. And if Alphawave has failed to meet these transparency requirements, the firm could face some substantial legal penalties from regulators. The company vehemently denied any wrongdoing, stating it has “met all its disclosure requirements before, during and since the IPO, and will continue to do so“.
Alphawave’s business relationship with VeriSilicon started in February 2021, before its May IPO. However, it’s worth noting that no revenue from this contract has been recognised yet. And as a result, disclosure may not have been legally required in this instance. If this is the case, then the fall in the AWE share price could, in fact, be a fantastic buying opportunity for my portfolio.
The bottom line
I can’t deny that the firm’s technology is impressive. And with the rise of the Internet of Things and autonomous vehicles, I think it’s fair to say the demand for high-performance chips isn’t going away any time soon. However, the disclosure situation does make me slightly concerned.
Suppose regulators decide to open an investigation and find Alphawave to be in breach? In that case, it could have an enormous negative impact on the AWE share price. Personally, I’m not interested in adding this risk to my portfolio. Therefore, I’ll be keeping this business on my watchlist while the situation develops.
