The biggest driving force in the stock market over the past few years has been artificial intelligence (AI) infrastructure, so when AI chip company Cerebras Systems (CBRS +6.05%) made its public debut on May 14, investors, not surprisingly, sent its shares soaring. After the stock climbed 68% on its first day of trading, is it too late to get in on the fun?
Today’s Change
(6.05%) $16.93
Current Price
$296.65
Key Data Points
Market Cap
$64B
Day’s Range
$272.24 – $303.66
52wk Range
$185.00 – $386.34
Volume
34K
Avg Vol
15M
Gross Margin
39.03%
Go big, or go home
For those unfamiliar with Cerebras, the company makes AI processors that compete with graphics processing units (GPUs) from the likes of Nvidia and Advanced Micro Devices, as well as custom AI chips, like Alphabet‘s tensor processing units (TPUs) and Amazon‘s Trainium chips. The company says its chips can provide inference 15 times faster than the leading GPU while using only a fraction of the energy. However, there is a catch.
Cerebras’ Wafer-Scale Engine (WSE) chips are, relatively speaking, enormous. While most companies have worked to shrink their chips to about the size of a postage stamp, Cerebras has gone in the opposite direction, designing huge chips that are about 8.5 inches on a side — about the size of a regular iPad, not the mini version. Cerebras chips are essentially the size of an entire chip wafer. This makes them more difficult and expensive to manufacture.
Manufacturing high-end logic chips in general is a difficult task, as defect rates can be high. Taiwan Semiconductor Manufacturing is the only foundry that has consistently been able to produce such chips with high yields of defect-free processors, which is how it has achieved a virtual monopoly in the space. However, even its chips aren’t 100% defect free. When manufacturing traditional GPUs, each silicon wafer is cut to make dozens or hundreds of individual processors. If a few of those chips are too flawed to ship, it’s a manageable issue. But when you’re producing a single wafer-sized chip, you can’t afford defects that cause an entire wafer to be thrown out. To reduce the chances of that happening, Cerebras incorporates spare cores into its architecture, enabling its chips to work around flawed sections so that they don’t impact the chip’s performance.
Another big difference with Cerebras’ AI chips is the type of memory they use. Most GPUs and other AI chips are packaged with off-chip high-bandwidth memory (HBM), a special form of DRAM (dynamic random access memory), which is needed to help optimize their performance. However, given the size of its chips, Cerebras chips use on-chip SRAM (static random access memory), which is faster but also physically larger and more complex.
Its chips also need special cooling and, as such, are only sold as part of its CS-3 system complete end-to-end server rack, which it also rents out. Cerebras Systems is ultimately trying to reduce much of the complexity of the networking hardware and other components going into data centers while offering chips that provide better performance on some types of workloads.
A hot IPO
Cerebras Systems originally proposed pricing its initial public offering (IPO) shares at between $115 and $125, then raised the anticipated range to $150 to $160. By the IPO day last week, those shares were priced at $185. However, retail investors never saw prices anywhere close to that: The stock opened trading at $350 and oscillated throughout the day before closing at $311.07.
The company sold 30 million shares — about 14% of its initial float — with the potential of 34.5 million shares reaching the market after overallotments, or 15.7% of its initial float. Given how hot the IPO was, there is little doubt that the investment bank underwriters exercised these overallotments, so the stock sale would have raised $6.2 billion for the company. In fact, according to reports, investors put in orders to buy 20 times as many shares as were offered by the company.
The company also drew interest from Arm Holdings and Softbank, which reportedly tried to acquire it before the IPO.
Image source: Getty Images.
Is the stock a buy?
Based on the stock price as of the end of that first day of trading, Cerebras would have had a market cap of around $68 billion. But as of Monday morning, it was down to around $60 billion. Last year, it grew its revenue by 76% to $510 million and had a gross margin of 39%. About 70% of its revenue was from hardware, with the rest coming from cloud and other services.
Even if you assume similar revenue growth for 2026 to $900 million, the stock was trading Monday morning at a forward price-to-sales (P/S) ratio of about 67 times. However, it reportedly has $20 billion in commitments from OpenAI, so it could see much faster revenue growth in the coming years.
That said, for a company that was valued at $23 billion in the private markets in February, when it raised $1 billion, I would not chase the stock here. The valuation is sky high, and Cerebras still has to prove it’s more than a niche player.
