Cerebras Stock Extends Tumble Overnight Despite $20B OpenAI Contract — Analyst Says 'Concentration Rotated, It Didn't Go Away'

• The UAE-affiliated customers accounted for about 86% of the company’s revenue last year, according to the firm’s IPO filing.
• Cerebras reported a wider-than-expected adjusted loss for Q1, causing its shares to drop 11%.
• On Stocktwits, the retail sentiment for CBRS shifted to ‘extremely bullish’ on Tuesday night.

Cerebras Systems’ stock tumbled over 11% in overnight trading on Tuesday, after the chipmaker’s first quarterly report since its initial public offering last month. Even as revenue nearly doubled and came in higher than expected, the adjusted loss was wider than the target.

Meanwhile, Cerebras revealed that its supply agreement with OpenAI, which was announced in January, is worth $20 billion. The ChatGPT maker has contracted Cerebras for 750MW ultra-low-latency AI compute capacity, which will come online in multiple tranches through 2028.

The company operates Cerebras Inference Cloud, where customers rent AI compute powered by Cerebras chips.

CBRS Customer Concentration In Focus

The update is significant for investors, as the company seeks to broaden its customer base and address concerns that its revenue remains overly concentrated among a limited number of customers.

The UAE-affiliated customers, including G42 and Mohamed bin Zayed University of Artificial Intelligence, accounted for about 86% of the company’s revenue last year, according to the firm’s IPO filing. 

However, analysts believe the risks remain. “Concentration did not go away; it rotated,” said Patrick Moorhead, a chief analyst at Moor Insights. 

“The answer is a $ 20B-plus, 750MW commitment to one customer, OpenAI, who also lent Cerebras $1B and gets paid partly in warrants. Trading G42 risk for OpenAI risk could be looked at as a bigger single point of failure, not diversification, and most of the $24.6B backlog is that one contract,” he said in an X post.

Moorhead flagged the margin pressure, which appears to be behind the share drop. “The wafer-scale technology is real and genuinely differentiated on speed. The margin path, the cash burn, and the concentration are the questions that matter now.”

Meanwhile, Cathie Wood’s ARK Investment Management scooped up more CBRS shares, adding a $5.8 million lot on Tuesday.

CBRS Q1 Results

Cerebras’ first-quarter revenue rose 94% to $193.4 million, beating analysts’ estimate of $181.2 million from FactSet. Hardware revenue rose 59% to $110.6 million, while revenue from cloud and other services nearly tripled to $82.8 million.

However, the adjusted loss of $0.22 per share was wider than the $0.16 per-share loss target. 

Cerebras raised about $5.6 billion in its May IPO, fueled by enthusiasm about its flagship Wafer-Scale Engine chip, which is purpose-built for AI models. As of the last close, CBRS stock is 23% higher than its IPO price.

Retail View On CBRS

On Stocktwits, the retail sentiment for CBRS shifted to ‘extremely bullish’ on Tuesday night, from ‘bearish’ the prior day, with 24-hour message volume rising over 1,800%.

“$CBRS I waited for the price to come down and it did. ER was fine. I'm buying and holding,” a trader said.

“The only reason OpenAI was secured as a major future customer was by enticing them with penny warrants. Already on Day 1 as the company trades at $360/sh, those warrants are already worth $12B to OpenAI relative to the $20B+ in purchase commitments they made to Cerebras,” another trader wrote.

“Sure it's a great technology and company but sorry if I'm a bit skeptical on this 200x sales valuation for a company that hasn't demonstrated any real arms-length commercial viability for its products,” they said.

Traders said they would watch the stock move closely, especially since the window for some insiders and pre-IPO investors to sell CBRS stock just opened.

Almost 13% of the IPO shares are eligible for sale by insiders and early investors on Thursday, according to Barron’s. The next trigger comes two days after the company reports its second-quarter earnings, making another 17% of shares eligible to trade.

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