Stone Soup
Stone soup tells the story of a traveler who comes to a village hungry. The villagers won't share any of their food with her. She puts a stone in a pot over a fire. The villagers get curious. She tells one she'll share her delicious "stone soup" if the villager just provides some garnish. Another villager offers some potatoes. Another some chicken or beef. This goes on until the traveler has a delicious soup, except for the stone, which she tosses, and everyone enjoys what's left.
Lamplighter likes a special situation. Kalray SA, a Grenoble-based semiconductor company, falls in this category. Actually, it falls in all the special situations categories. Like "stone soup" ends up with all the ingredients from the village, Kalray checks all the special situations boxes.
Ingredients
The company designs processors for AI data centers. That's its aspiration, anyway.
It spun-off into existence from nearby CAE. This is a government agency, not a commercially-minded owner. The company then recently sold-off its struggling data storage business to raise cash. Its only commercial activity now is designing AI-accelerator processors for data centers. It entered into a contract with its only customer, Openchip, that tips the company into profit. It also raised capital from Openchip, which includes an option to buy a controlling stake in the company.
So, a spin-off, a government privatization, an asset sale, a contractual revenue stream, a turn into profitability, and an identifiable potential buyer. All the special situations.
Does this make it a good investment?
No.
Soup or salad?
Like the stone being taken out of "stone soup" before eating, there's not much "company" left in Kalray. It's a small group of engineers designing chips for a single customer.
Is that worth anything? Kalray's market price of €0.75 per share is a huge come down from its salad days over €50 back in 2021. Openchip's option to buy half the outfit is €0.79. At this price though, the odds of any sort of "success" for the firm are somewhere between zero and a few percent.
Success could mean Kalray developing chips to rival Nvidia's GPUs or Google's TPUs. More likely, it means a full buyout at something higher than 0.79. Either way, the downside already happened. The company's price is nearly nothing. Any sort of success would give shareholders more than €0.75 or €0.79. It has enough commercial activity and plays in an enticing enough market to make "a low probability of something" a strong enough investment case.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.