Nano Dimension (NASDAQ:NNDM) is an exciting company. It has what seems like revolutionary technology allowing users to create semiconductor circuit boards with 3D printers. That’s cool in its own right. It could also help alleviate the semiconductor shortage. There’s also national security interest in producing sensitive semiconductor materials domestically. NNDM stock ripped from $1 to as high as $15 as Cathie Wood’s Ark Investments took a major stake in the company.
However, Nano Dimension’s promise hasn’t yet turned into much in the way of tangible results. The company generated less than $4 million in revenues in 2020.
And short sellers have pointed out some alleged issues with the firm and its management team. That, combined with a business that has long generated tons of press releases but not much in the way of revenues or profits is enough to make investors nervous. This week, an unexpected acquisition added to the uncertainty around NNDM stock. That said, the company has one strong redeeming factor that keeps it from being a total mess.
DeepCube: Nano Dimension’s New Acquisition
On Tuesday, Nano Dimension announced that it is acquiring DeepCube. As it describes it, DeepCube is a leader in machine learning. DeepCube has patented technology to improve data analysis in artificial intelligence (AI) systems. The press release claims large benefits, such as 10x improvement in speed and reduction of memory usage. It also is said to work across a wide variety of platforms and hardware specifications.
All told, DeepCube sounds great. While the press release reads well, it’s unclear what stage of commercialization this technology is at. As we’ve seen with Nano Dimension itself, it’s one thing to have cool tech, it’s another to run a successful business with it.
Concerns With DeepCube
There are two issues with this acquisition that should give investors pause. For one, it’s unclear what connection, if any, there is between DeepCube and Nano Dimension’s current business. There’s not many obvious synergies you would get between 3D printing and AI software. They’re both cutting-edge technologies, I’ll grant you that. Just by itself, however, that’s rather tenuous. There doesn’t appear to be any logical reason to combine these two different fields together.
The company does give an explanation about how using DeepCube’s AI will enable “Industry 4.0” and allow Nano Dimension to transform its field in the same way personal computers were transformed in the 1990s. However, the press release is full of indecipherable technical jargon. Meanwhile, it’s lacking many practical details of how this will result in revenues or profits for Nano Dimension in the foreseeable future.
So why do this deal then, if it doesn’t add to Nano Dimension’s 3D printing operations? Here’s the real point of concern: DeepCube’s Executive Chairman and DeepCube’s Chief Technology Officer are both directors of Nano Dimension! Thus, this is a clear related-party transaction. Given that machine AI learning doesn’t have much in common with 3D printing, it’s far from certain that a fully independent board of directors would conclude that this deal was the best use of the company’s capital. Investors should always be cautious about such related-party transactions.
There’s also the curious matter that Nano Dimension will pay for part of the deal with newly-issued NNDM stock. Nano Dimension has $1.5 billion in cash and has done countless stock offerings over the past year. And its overhead for running the business is minimal. So there’s no shortage of available funds with which to make this deal happen. Instead, Nano Dimension is selling yet more stock to the public. That’s a red flag.
NNDM Stock Verdict
For all my concerns about Nano Dimension, I’m actually fairly neutral on the stock. There’s one key reason for that: It has $1.5 billion in cash. Simply put, Nano Dimension’s market capitalization today is just $1.9 billion. Back out the $1.5 billion of cash, and the actual implied value of the operating business is just $400 million.
Given Nano Dimension’s scant revenues and questionable business decisions, I’m not rushing to buy into the story either. However, when a stock is selling for little more than its cash value, there’s not much motivation to bet against the firm. Even with that in mind, a shocking 36% of the float in NNDM stock is shorted as of this writing. That could potentially set up a short squeeze on any good news going forward.
That said, any squeeze would likely be temporary in nature. Until Nano Dimension starts generating far greater revenues, it will be hard to get too excited about this business. And its puzzling move to acquire DeepCube does nothing to change that fact. For now, the best move with NNDM stock is to stay on the sidelines.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.