Extending Losses: Cerebras Plunges More Than 12% Premarket, Dragged Down by Gross Margin Guidance

TradingKey - "Nvidia Challenger" Cerebras ( CBRS) extended its previous day's post-market slide in Wednesday's pre-market trading, with the stock price plunging over 12% at one point.

Source: TradingView

The immediate trigger for the market panic was the company's earnings guidance—management expects the core gross margin for the second quarter of fiscal year 2026 to plunge from 46.5% in the first quarter to 36%-38%, with the full-year core gross margin guidance set at 38%-41%.

This level is not only far below its competitor Nvidia's gross margin of around 70%, but also exposes the cost pressures the company faces during its expansion.

Chief Financial Officer Bob Komin explained during the conference call that a severe shortage of data center space is forcing the company to lease back equipment from customers and build out its own capacity, a move that will drag down margins by 10 to 15 percentage points this year.

Even more unsettling for the market is that Cerebras's profitability prospects appear particularly fragile under the current macroeconomic environment, where recent broad tech sell-offs have heightened concerns over rising AI costs and potential Federal Reserve interest rate hikes.

As a highly valued AI chip upstart, Cerebras bears the brunt of the risk-off environment. Currently, the company's stock trades at a price-to-sales (P/S) ratio of 95.6 times, far higher than Nvidia's level of around 40 times, with the market eager for a clearer path toward profitability improvement.

However, institutional investors remain optimistic about Cerebras's long-term prospects.

Morgan Stanley ( MS) maintained an "Overweight" rating and raised its price target from $250 to $273, as the bank believes Cerebras's Wafer-Scale Engine (WSE) has a strong technical exclusivity in the low-latency AI inference segment.

TD Cowen also pointed out that the strategic cooperation agreements signed with Amazon and OpenAI are key pillars for Cerebras's long-term growth.

Analysts urged investors to remain patient and focus on the company's progress in technology commercialization and capacity expansion rather than short-term profitability fluctuations.

Cerebras occupies a differentiated position in the AI chip field with its unique wafer-scale integration technology, and its flagship product, the Wafer-Scale Engine 3, is widely considered the world's fastest commercial AI processor.

Since going public in May this year, the company has raised approximately $5.55 billion for technology R&D and capacity expansion. However, the manufacturing cost pressures arising from the oversized chip, along with the massive investments required for data center construction, have become short-term bottlenecks restricting its profitability.

Balancing short-term profitability with long-term growth while maintaining its technological leadership will be the core challenge for Cerebras's future development.