Cerebras Cloud Revenue Nearly Quadrupled — But Why Did the Stock Crash 17% on "Confusing" GAAP Results?

TradingKey - Cerebras Systems (CBRS) had an outstanding second quarter for their cloud and services growth, which is the fastest growing sector of AI infrastructure, but their stock still dropped 17% in after hours trading on August 12. The disconnect between the markets and their operations shows an important work week ahead. From a core business perspective, Cerebras exceeded targets. Cloud revenue was up nearly 4X from the prior year, total core services revenue was up more than 2X, and gross margins increased. From a GAAP perspective, revenue reporting of $180M fell short of the target of $194M, which industry participants targeted for selling. The reason for the shortfall was a decrease in hardware revenue margin from providing a system rental to an existing customer to fulfill OpenAI's demand, which the company will fulfill once dedicated data center capacity is available. This is a timing issue, not a demand issue. 

The market has confused accounting with fundamentals and has rightfully punished the stock. For the next week, the most important question for potential investors remains – what if any incremental information will be provided by the Jackson Hole conference on August 21-22 that could provides assurances for continued AI infrastructure spending for the foreseeable future as the only justification for Cerebras’ current valuation and expected growth? If the Fed makes positive assurances for spending, then the confusion after the earnings releases will resolve. If not, then the stock will continue to weaken.

The Cloud Story Is Genuine: $127.7M in Core Cloud Revenue, +287% YoY

Cerebras reported strong operating metrics for value creation in the long-term for Q2 of this year. Core cloud revenue came in at $127.7 million, an increase of 287% YoY, large enough to be Cerebras's largest revenue segment of the three for the first time. GAAP cloud revenue came in at $126 million, and if we round numbers, that also represents an impressive 281 percent increase YoY. This should not go unnoticed as the rapid growth of their data center capacity continues to scale, with a focus on serving their clients of the OpenAI and AWS partnership, and also AMD.

Total core revenue came in at $209.9 million, a 103 percent increase YoY surpassing the $194 million prior guidance. Cerebras is also confident enough to raise their full-year fiscal 2026 core revenue guidance to the $880 - $890 million range from the previous $855 - $865 million guidance. As a bonus, for Q3 they have guided for core revenue to be in the $214 - $216 million range.

The Hardware Miss Is Temporary Timing, Not Demand Destruction

Cerebras Systems has a simple, but potentially problematic reason for missing the GAAP revenue goal. Before Cerebras Systems can build and deliver its data-center infrastructure, Cerebras Systems' existing customer rented back some of its systems to Cerebras Systems to meet the growing customer demand from OpenAI. This revenue rent-back in the second quarter caused an accounting timing mismatch.

From a core perspective, for the second quarter of 2022, hardware revenue grew by 17%, or $82.1 million, from the same period last year. However, GAAP hardware revenue declined by 23%, or $54.1 million. The difference, or $27.9 million, in this case, was a drag from the hardware revenue rental arrangement, and management expects it to reverse, or be recovered, in the next few quarters, when the systems are be brought online. However, the markets saw this decline as evidence of lower customer demand, which caused a 17% after-hours sell-off.

The Real Story: Fast Inference Pricing Power and $25.4B Remaining Performance Obligations

Management has stated that "fast inference is priced at a premium." Feldman's comments explained that the wafer-scale architecture offers rapid response times for real-time AI applications as compared to traditional GPU clusters, and that it is worth the premium price.

Trust, but verify. The RPO of $25.4B is customer demand contracted, but yet to be booked, a trust but verify situation. Packed with four years of bookings assuming a sustained revenue run rate, the RPO is a confidence builder and reflection of customer trust in the product roadmap for providing fast inference.

Gross Margin Expansion Proves Execution, Not Just Growth

Improving core gross margin by 940 basis points to 41% signals that Cerebras retains margins as it scales and bakes margin into its pricing, rather than just pursuing growth through pricing. Management stated that core operating margin improved to negative 16% (negative 42% the year prior), demonstrating a 2,600 basis point improvement. For Q3, management indicated core gross margin should be in the range of 38-40%, which would indicate margin expansion as the hardware mix stabilizes.

Next Week's Catalysts: Jackson Hole Is the Macro Test for AI Capex Confidence

The 17% post-earnings decline is likely not due to accounting issues. Market participants are lighting the candles to see if AI infrastructure investment spending will continue to light the path in 2027. Next week’s events: The Jackson Hole Symposium is scheduled to start on August 22. Expectations are for Chairman Powell to outline the Fed’s rate position and assist markets in gauging growth and confidence with respect to the outlook.

Powell leading with accommodation and an optimistic outlook for the economy will provide assurances to Cerebras and other hyperscaler customers to defend their capex budgets. Conversely, a lack of confidence and focus on the unknown by Powell would likely dry up capex, put extreme pressure on Cerebras’ multiple, and lead to high growth, capital intensive investing companies funding challenges. 

Also, on August 20th, U.S. jobless claims data will be released and on August 21, Canada’s employment statistics will be released. Either of these could alter market sentiment regarding the sustainability of AI spending.

The AMD and CrowdStrike Partnerships Reduce Execution Risk

Cerebras Systems released that they have been chosen by AMD’s AI accelerators as part of their partnership as reported in late Q2 of 2021, and that products are to be released in 2026. CrowdStrike has also chosen to include Cerebras Systems. Meanwhile, OpenAI is focused on exceeding the infrastructure capability of the GPT-5.6 Sol inference. Diversification of Direct Hardware Sales From a Single Customer is Easier With These Collaborative Partnerships.

Cerebras Technical Setup: Consolidation Below $244, Support at $222.62

Cerebras has been consolidating below $244.03. After the selloff, Cerebras has been testing important supports on the 2-hour chart. Consolidation has brought Cerebras closer to the 50 EMA and Rising Channel Support at $222.62. The broad market structure is bullish as long as Cerebras System remains above $215.25. Cooling RSI to the mid-region also showed the short-term exhaustion of bullish momentum after overshooting to the overbought territory this week.

Cerebras Price Chart - Source: Tradingview

In the bullish case, if Cerebras Systems manages to break above $244.03, $265.36 would come into play. A breakout above $265 could turn the broad market structure bullish toward $286.20. If channel support breaks down, the focus would be at $218.85 - $215.25. below would provide further support at $204.90.

Key Levels (Next Week)

• Immediate resistance:  $244.03 (prior breakout level)
• Major resistance:  $265.36
• Extended target:  $286.20 (if $265 breaks)
• 50-period EMA support:  $222.62 (critical hold)
• Channel support:  $218.85
• 100-period EMA support:  $215.25
• Deeper support:  $204.90
• RSI:  50 (neutral, reset from overbought)

What to Watch Next Week: Does Jackson Hole Restore AI Capex Confidence?

The post-earnings sell-off was not caused by Cerebras' operational issues, but was instead a panic selling event resulting from capex angst. Despite a GAAP miss (temporarily) due to system rentals to OpenAI, Cerebras reported impressive growth metrics with cloud revenue up 287% and core revenue up 103% as well as a $25.4B backlog.

Jackson Hole commentary from the Fed and other members potentially confirming continued confidence in funding AI infrastructure could mean quick resolution of the post-earnings confusion. Incapable of funding AI Capex, investors could begin to apply additional selling pressure to Cerebras stock.

Bottom Line (Aug 16, Weekend Perspective)

Cerebras delivered a great quarter with cloud revenue up 287% and core revenue up 103%, an improvement to margins by 940 basis points, and a large $25.4B RPO with long term visibility. The only hit to GAAP revenue was a temporary arrangement to rent systems to OpenAI. Yet the market was worried about continuous AI Capex, rather than declining operational metrics, causing the stock to drop 17%.

Whether Jackson Hole, where member of the Fed meet and comment on policy, will say they are more accommodating and have funded AI Capex confidence is likely more impactful than Cerebras' earnings in the coming week. Should the Fed comment on the economy in a way that leads to some certainty around the absence of cuts to interest rates, the selling pressure will continue to cause consolidation. From a technical perspective, CBRS stock is trading between support at $222.62 (50-EMA) and resistance at $244.03.

For investors: The basic storyline remains the same. Demand for fast inference is real, proven pricing power, and a $25.4 billion run-rate-of-sales agreement is substantial. Wait for the Jackson Hole address for new exposure. For traders: Use the consolidation of $222.62-$244.03 to create positions if the Fed commentary justifies capex cycles. This is analysis and not investment advice.