Shares of Cerebras Systems fell nearly 20% after the AI chipmaker forecast lower profit margins in its first earnings report since becoming a public company.
The stock dropped close to its $185 initial public offering price despite Cerebras reporting stronger-than-expected first-quarter revenue and a narrower net loss. Investors focused instead on the additional costs the company expects as it expands computing capacity to meet customer demand.
Margin Forecast Raises Investor Concerns
Cerebras reported a core gross margin of 47% for the first quarter. It expects that figure to decline to between 36% and 38% in the second quarter and between 38% and 41% for the full year.
Chief executive Andrew Feldman told CNBC that investors had misunderstood the guidance. He said the near-term decline reflects a temporary arrangement rather than a permanent deterioration in the company’s underlying economics.
Cerebras plans to rent back some of the computing systems it previously sold to an existing customer. The temporary arrangement will allow the company to make more inference capacity available while it builds and deploys additional data centres.
Chief financial officer Bob Komin said the rental costs would reduce margins in the company’s cloud and services business during the expansion period. Cerebras has set a longer-term gross margin target of 60%.
Revenue Nearly Doubles From a Year Earlier
According to the company’s first-quarter earnings report, revenue reached $193.4 million, up 94% from $99.5 million a year earlier.
Hardware revenue rose 59% to $110.6 million, while cloud and other services revenue increased 178% to $82.8 million. Cerebras recorded a GAAP gross margin of 45% and a core gross margin of 47%.
Its net loss narrowed to $14 million from $23.9 million in the same quarter last year. On an adjusted basis, the company reported a core net loss of $2.5 million, compared with $14.7 million a year earlier.
For the second quarter, Cerebras forecast core revenue of approximately $194 million. It expects full-year core revenue of between $855 million and $865 million, representing growth of around 69% at the midpoint.
Capacity Expansion Adds Short-Term Costs
Cerebras is increasing infrastructure spending as it prepares to support major customer agreements, including a multi-year deal to supply OpenAI with 750 megawatts of computing capacity.
The company is also working with Amazon Web Services to combine its CS-3 systems with AWS Trainium chips for AI inference. Cerebras said it is considering additional data-centre locations in markets including Singapore, India, Australia, Israel, Indonesia, and the United Arab Emirates.
The strong revenue growth did not prevent investors from reacting negatively to the lower margin outlook. Cerebras shares fell below their IPO price during Wednesday’s trading, according to market reporting.
Featured image credits: Magnific.com
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