There is no shortage of high-flying tech stocks, most with names made recognizable by months of hype. Then there are the ones that seemingly come out of nowhere. China’s WiMi Hologram Cloud Inc (NASDAQ:WIMI) falls under the latter classification. It’s possible you may have heard the name as part of its April initial public offering. For most people, it appeared on the radar when WiMi Hologram Cloud stock suddenly exploded in July, then dropped just as quickly.
At this point, WIMI is trading at just under $8 — which is still an impressive 45% gain since its April 3 IPO — but there are many questions around the company.
The biggest one from an investment standpoint is whether the current price of WIMI shares is an opportunity to get in (they closed near $25 in July), or just a stop on the way back down.
A Closer Look WiMi Hologram Cloud Stock
WiMi Hologram Cloud has developed technology for holographic projections, with augmented reality (AR) applications. It basically promises to expand AR by having holographic projections to interact with instead of having to wear AR glasses. The company’s primary source of revenue at the moment is holographic AR advertising campaigns for clients that run on platforms like TikTok.
The company announced in July that it also plans to expand into designing computer chips, with the aim of incorporating holographic technology at the hardware level.
Shares in WIMI skyrocketed in July, going from $3.84 to $24.74 in just two days. That’s a 544% pop!
The trigger for the rapid movement was the World Artificial Intelligence Conference. Alibaba Group Holding Ltd – ADR (NYSE:BABA) Chairman Jack Ma was unable to attend because of the novel coronavirus pandemic. Instead, he used WiMi holographic technology to appear onstage as a hologram.
WiMi immediately put out a press release, further pumping up its technology. It didn’t hurt that the company managed to work both Tesla (NASDAQ:TSLA), Apple (NASDAQ:AAPL), 5G, and other buzz-worthy tech stories into the narrative.
The excitement over the use of the technology sent WIMI stock soaring.
Why Did It Slump Just as Quickly?
The high valuation of WiMi Hologram Cloud stock was short-lived. The day after hitting its all-time high close, WIMI was down 29%. It continued to slide and is now trading in the $8 range.
Why the slump? The first issue is the reality check. What WiMi showed off at the conference was impressive, but it was essentially a tech demo at a high profile event. These things have a long history of not playing out quite so smoothly when they’re used in real-life applications.
The second issue was that WiMi decided to capitalize on its sudden popularity to file for a second offering. The plan to sell an additional 7.56 million shares at $8.18 each raised concerns that existing shares would be diluted in value.
Bottom Line on WiMi Hologram Cloud Stock
There is a higher degree of risk in investing in any Chinese companies these days. Only two months ago, a bill was passed by the Senate that would delist Chinese stocks that failed to pass U.S. audits. Blowback from the trade war between the U.S. and China remains a possibility.
WiMi carries the risk of being a Chinese company, but it’s also a start-up that saw its stock spike after its technology was thrust into the spotlight. Augmented reality is seen as a legitimate next-generation tech with big commercial and consumer applications.
Applying holograms to AR as WiMi has done makes for some eye-popping demos, but can the company commercialize it at scale? WiMi cites IDC research that pegs China’s AV/VR market hitting $65.21 billion by 2023. However, that number includes all AR and VR technology — what percent of that is holographic AR remains to be seen.
Your view of these factors will determine whether you see the recent slump in WiMi Hologram Cloud stock as a buying opportunity or a warning. It’s either a chance to get in at a good price before WIMI takes off again, or it’s a sign that the earlier price spike was mostly hype. Personally, I’m in the hype camp, but time will tell.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.