Cerebras shares drop nearly 20% after earnings report

Shares of Cerebras Systems dropped almost 20% on Wednesday, hitting a new low and nearly touching the company’s IPO price—the price at which its shares were first sold to the public. This market sell-off occurred immediately after the AI chipmaker delivered its first earnings report since going public. The drop came despite the fact that Cerebras delivered better-than-expected first-quarter earnings on Tuesday, characterized by strong revenue growth and a narrowing net loss.

The company’s financial highlights for the first quarter include:

• Quarterly Revenue: $193 million, representing 94% year-over-year growth.
• Net Loss: $14 million, narrowing from a net loss of $23.9 million in the previous year.
• First-Quarter Gross Margin: 47%. Gross margin is a measure of profitability representing the difference between revenue and the cost of goods sold.
• Full-Year Gross Margin Guidance: A projected range of 38% to 41%.

The downward pressure on the stock stems from the company’s full-year outlook, which forecasts a narrower gross margin of 38% to 41% for the full year, down from the 47% gross margin reported in the first quarter. This projected decline is tied to a temporary operational strategy. Cerebras will rent back equipment from one of its largest existing customers. During its earnings call, the company explained that it decided to temporarily rent its own systems back to make capacity available to users sooner, while it continues to build out and deploy its own dedicated data center capacity. Management acknowledged that this rent-back decision would cut into profit margins for the remainder of the year.

In an interview with CNBC, Cerebras CEO Andrew Feldman pushed back against the market’s reaction, asserting that investors had misunderstood the company’s margin guidance. Feldman clarified that the rent-back agreement is a temporary operational measure designed to accelerate capacity deployment, rather than a permanent shift in the company’s business model or long-term profitability.

Why it matters

Cerebras is prioritizing rapid data center deployment over short-term profitability, a trade-off that investors are currently struggling to price in as the company scales.