Why AI Stock Ceva Was Sliding Hard This Week
Key Points
It announced a fresh round of capital-raising.
This is taking the form of a secondary common stock flotation of at least 3 million shares.
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This was a week to forget for Ceva (NASDAQ: CEVA) and its investors. The specialty tech company announced a new round of capital-raising, and the market didn't take the news well. As of early afternoon Friday, according to data compiled by S&P Global Market Intelligence, Ceva's share price was down by more than 22% week-to-date.
3 million reasons for concern
After market hours Tuesday, Ceva announced it had priced a secondary share issue. The company is floating 3 million shares of its common stock at $19.50 per share. The offering's underwriters, a syndicate that includes JPMorgan Chase unit J.P. Morgan and UBS, have been granted an option to collectively buy up to 450,000 additional shares at the same price.
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In its latest press release on the issue, the company stated that it intends to use its share of the proceeds to "increase Ceva's financial flexibility, obtain additional capital and to increase its public float." It also mentioned other uses, such as potential acquisitions in synergistic technologies or businesses, and share repurchases.
Ceva, which has been tagged as an artificial intelligence (AI) company although that doesn't entirely cover the scope of its work, added that it expected the issue to close on Thursday, Nov. 20. As of this writing, it has not published an update.
The specter of dilution
Any sizable capital raise engenders fear of shareholder dilution, and in Ceva's case, it's warranted to a degree -- the potentially 3.45 million new shares will water down the existing float of slightly over 27 million.
I believe Ceva has above-average potential in its business, considering it operates in a highly promising niche. I would wait and see how effectively it uses those proceeds, however, because especially now investors are skittish on many businesses strongly identified with AI.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Ceva. The Motley Fool has a disclosure policy.
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