Could Brainchip (ASX:BRN) crack into the ASX 200? Here’s what it takes

Key points

• ASX-listed Brainchip is flying higher again today after announcing another granted patent
• The company now holds a significant market capitalisation of over $3.5 billion
• Based on eligibility criteria, Brainchip could soon be in with a chance to make the ASX 200

The Brainchip Holdings Ltd (ASX: BRN) share price continues to defy gravity as it sets yet another all-time high today.

It was only yesterday when we covered the artificial technology company eclipsing a $3 billion market capitalisation. This achievement was solidified with a 20% share price jump after Brainchip announced it had begun taking orders for the commercialised Akida product.

Twenty-four hours later and another United States granted patent, ASX-listed Brainchip is now eyeing off a $4 billion market cap. Following today’s news, shares in the company are up another 18% to $2.20 — giving it a valuation of $3.77 billion.

In turn, investors might be wondering: can Brainchip make its way into the S&P/ASX 200 Index (ASX: XJO)?

What is the criteria to break into the top 200 index?

The ASX 200 is one of the most popular indexes for investors to track the broader market — making it an appealing low-cost passive investment option.

For this reason, vast sums of money rely on the index being reflective of the Australian share market. As such, the index is weighted based on the float-adjusted market cap of the ASX shares included.

To be included in the index there’s are a few pieces of criteria that a company must meet before being selected. These being:

• Must be listed on the ASX
• Hold an average daily float-adjusted market cap above what is considered ‘institutionally investable’ for the past six months
• Show adequate liquidity for investors to be able to buy and sell shares relatively easily

So, how does Brainchip stack up against the criteria? It is definitely listed on the ASX. Secondly, trading volume has lately been rivalling some of the largest companies already included in the ASX 200.

Lastly, the artificial intelligence company’s market cap is now floating around what would typically be considered ‘institutionally investable’. However, this has only been the case since around November, when ASX investors began ferociously bidding up Brainchip shares. In October 2021, the company’s market cap was closer to $700 million.

At present, the company with the smallest market cap in the ASX 200 is Pendal Group Ltd (ASX: PDL), at $2.07 billion. Based on this, if Brainchip can sustain its valuation for several months it might be in with a chance.

Does Brainchip’s lack of meaningful revenue exclude it from ASX 200?

Some investors might think that Brainchip’s ASX 200 hopes would be nullified by its lack of meaningful revenue. However, the index does not have eligibility criteria based on revenue.

In fact, there are currently numerous companies included in the ASX 200 index that are yet to produce meaningful revenue. For example, Liontown Resources Limited (ASX: LTR), Paladin Energy Ltd (ASX: PDN), and Telix Pharmaceuticals Ltd (ASX: TLX) are all index included companies that fit into this category.

Ultimately, S&P Global will have the call on whether to include Brainchip in the ASX 200 in the future. The next rebalance will occur on the third Friday of March.

The post Could Brainchip (ASX:BRN) crack into the ASX 200? Here’s what it takes appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX shares today

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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