Key Takeaways
- Shares of Cerebras plummeted approximately 14% in pre-market hours Wednesday following its inaugural earnings release as a public company
- First-quarter sales totaled $193 million, representing 94% annual growth and surpassing analyst projections of $181 million
- Annual adjusted gross margin forecast of 38-41% fell short of market expectations, significantly trailing Nvidia’s mid-70% profitability levels
- Margin compression results from Cerebras leasing back its own hardware to fulfill surging demand under its $20 billion OpenAI partnership
- Wall Street firms including Morgan Stanley, Wedbush, and TD Cowen lifted price targets, with consensus analyst view reaching $294
Shares of Cerebras Systems (CBRS) tumbled approximately 14% during pre-market trading Wednesday after the AI chip designer released its maiden quarterly report as a publicly traded company. Trading at $226.72 at Tuesday’s close, the stock appeared headed toward its weakest performance since its May debut, erasing over $6 billion in shareholder value.
The financial performance wasn’t necessarily weak. First-quarter sales hit $193 million, marking 94% year-over-year expansion and exceeding the Street’s $181 million forecast. Adjusted operating losses narrowed to $3.5 million, a substantial improvement from the prior year’s $19.3 million deficit. Second-quarter revenue projections of $194 million similarly outpaced consensus estimates of $178 million.
What triggered the selloff? Forward-looking profitability metrics.
Cerebras projected adjusted gross margins between 38% and 41% for fiscal 2026, representing a decline from the 47% achieved in the first quarter. This profitability range falls considerably short of competitors — Nvidia maintains margins in the mid-70% territory, while AMD operates in the mid-50% range — despite exceeding analyst forecasts of 29.58%.
Understanding the Margin Compression
The profitability pressure directly correlates to Cerebras’ massive $20 billion multi-year agreement with OpenAI. Customer demand from OpenAI is growing more rapidly than Cerebras can deploy additional infrastructure. As a workaround, the semiconductor company is leasing back systems it had previously sold to existing clients and reallocating them toward OpenAI. This operational model generates lower profit margins.
Chief Executive Andrew Feldman disclosed during the analyst call that OpenAI’s GPT 5.4 model is currently operating on Cerebras processors, and that the artificial intelligence leader will implement 750 megawatts worth of its semiconductors throughout the partnership. He additionally verified that Amazon Web Services plans to integrate Cerebras chips into its infrastructure, with associated revenue anticipated within twelve months.
An accounting complexity also exists. Cerebras issued OpenAI warrants covering 33.4 million shares at virtually no cost. As the partnership scales, these warrant values are reflected as contra-revenue adjustments — a non-cash deduction that diminishes reported sales figures. Needham analyst Quinn Bolton identified this as an expanding challenge.
Customer Dependency Raises Questions
Client concentration continues as a notable concern. During Q1, 74% of sales originated from merely two sources: G42 and the Mohamed bin Zayed University of Artificial Intelligence — both connected to the UAE government. OpenAI contributed an additional 9%. Combined, these three customers accounted for 83% of quarterly revenue.
The company’s $25 billion order backlog predominantly comprises the OpenAI contract. Cerebras anticipates converting $4 billion of this pipeline into recognized revenue throughout the next 24 months.
Notwithstanding the market decline, Wall Street analysts maintained optimistic positions. Morgan Stanley elevated its price objective to $273 from $250. Wedbush increased its target to $280 from $270, reaffirming an Outperform rating. TD Cowen highlighted the Amazon and OpenAI partnerships as fundamental to sustainable expansion. The consensus price target among 11 covering firms stands at $294, with a Buy recommendation.
One immediate technical consideration: a lockup period concludes this Thursday, enabling approximately 13% of IPO shares to become available for sale by company insiders and early-stage investors.
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