Cerebras Stock Plummets Despite Strong Earnings Report

Shares of Cerebras Systems dropped almost 20% on Wednesday, even after the company delivered better-than-expected first-quarter earnings on Tuesday. That’s because in its first earnings report since going public, the AI chipmaker forecast a narrower gross margin in its core business, guiding for a full-year margin of 38% to 41%, compared with the 47% reported in the first quarter. The stock hit a new low on Wednesday, almost hitting the company’s IPO price.

Cerebras CEO Andrew Feldman told CNBC that investors had misunderstood the company’s margin guidance, noting that Cerebras will need to rent back some equipment from one of its largest customers. The company said during its earnings call that it decided to make more capacity available sooner by temporarily renting its own systems back from an existing customer while it builds out and deploys its own data center capacity. The company said this would cut into profit margins this year.

According to the company’s earning report, revenue for the quarter reached $193 million, up 94% year-over-year. Net loss narrowed to $14 million, down from $23.9 million a year earlier. Why this matters: The significant drop in Cerebras' stock price, despite a strong earnings report, highlights the challenges AI chipmakers face in meeting investor expectations.

The company's decision to rent back equipment from a customer to accelerate capacity expansion may be a strategic move, but it has clearly raised concerns about profit margins. As the AI industry continues to grow, Cerebras and its peers will need to balance investments in capacity expansion with maintaining healthy profit margins. The company's ability to execute on its growth plans while addressing investor concerns will be crucial in stabilizing its stock price and establishing its position in the competitive AI chip market.

With many questions still surrounding the company's margin guidance, investors will be closely watching Cerebras' progress in the coming quarters.