Key Takeaways
- Cerebras (CBRS) stock plummeted approximately 14% in pre-market hours Wednesday following its inaugural earnings release as a public company
- First-quarter revenue hit $193 million, reflecting 94% annual growth and surpassing Wall Street’s $181 million projection
- Full-year adjusted gross margin forecast of 38–41% fell short of investor hopes, significantly trailing Nvidia’s mid-70% margins
- Margin compression results from Cerebras leasing back its hardware to fulfill surge in demand from its $20 billion OpenAI partnership
- Wall Street firms including Morgan Stanley, Wedbush, and TD Cowen lifted their price objectives, with consensus analyst target reaching $294
Cerebras Systems (CBRS) stock experienced a sharp decline of roughly 14% during pre-market hours Wednesday after delivering its maiden earnings report as a publicly traded entity. After finishing Tuesday’s session at $226.72, the AI chipmaker headed toward its lowest valuation since its May debut, erasing over $6 billion from its market capitalization.
The financial performance itself delivered positive surprises. First-quarter revenue totaled $193 million, representing 94% year-over-year expansion and exceeding Wall Street’s $181 million forecast. The company’s adjusted operating deficit narrowed to $3.5 million, marking substantial progress from the $19.3 million loss recorded in the prior-year period. Second-quarter revenue projections of $194 million similarly surpassed the Street’s $178 million estimate.
What triggered the investor exodus? The company’s profitability forecast for the year ahead.
Cerebras projected adjusted gross margins between 38% and 41% for 2026, representing a decline from the 47% achieved in the first quarter. This guidance trails competitors significantly — Nvidia operates in the mid-70% territory, while AMD maintains mid-50% margins — despite exceeding analyst projections of 29.58%.
The Story Behind Margin Compression
The profitability pressure stems directly from Cerebras’ massive $20 billion long-term agreement with OpenAI. Customer demand from OpenAI is expanding more rapidly than Cerebras can commission new infrastructure. As a workaround, the semiconductor company is leasing back equipment it previously sold to existing clients and reallocating those resources to OpenAI. This operational model generates lower profit margins.
Chief Executive Andrew Feldman disclosed during the quarterly call that OpenAI’s GPT 5.4 is currently operating on Cerebras hardware, and the artificial intelligence company will implement 750 megawatts worth of its processors under the partnership terms. Feldman additionally revealed that Amazon Web Services plans to integrate Cerebras chips into its infrastructure network, with revenue anticipated to materialize within twelve months.
A revenue recognition complication adds another layer. Cerebras issued OpenAI warrants covering 33.4 million shares at essentially zero cost. As the partnership scales, these warrants’ value appears as a contra-revenue adjustment — a non-cash deduction that diminishes reported top-line figures. Needham analyst Quinn Bolton identified this as an expanding challenge.
Client Concentration Presents Ongoing Challenge
Customer diversification remains a significant concern. During the first quarter, 74% of total revenue originated from merely two entities: G42 and the Mohamed bin Zayed University of Artificial Intelligence — both connected to the UAE government. OpenAI contributed an additional 9%. Combined, these three relationships accounted for 83% of quarterly sales.
The company’s $25 billion order backlog consists predominantly of the OpenAI arrangement. Cerebras anticipates converting $4 billion of that pipeline into recognized revenue across the coming two years.
Notwithstanding the share price decline, Wall Street analysts maintained optimistic outlooks. Morgan Stanley elevated its valuation target to $273 from $250. Wedbush increased its objective to $280 from $270, preserving an Outperform designation. TD Cowen highlighted the Amazon and OpenAI partnerships as critical catalysts for sustained expansion. The consensus price target among 11 covering firms stands at $294, accompanied by a Buy recommendation.
One immediate technical consideration: a lockup period concludes this Thursday, enabling nearly 13% of IPO shares to become available for sale by company insiders and pre-IPO investors.
