Why Cerebras Systems Stock Crashed Today
Key Points
Cerebras beat on sales but missed on earnings last night.
Management warned of falling gross margins in the quarters ahead.
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Recent artificial intelligence chip IPO Cerebras (NASDAQ: CBRS) stock is off to a rocky start after its first earnings report as a public stock last night.
Analysts weren't optimistic about Cerebras -- which is still a start-up, after all -- forecasting a $0.16-per-share loss on sales of $180.8 million for fiscal Q1 2027. Cerebras's actual news was worse, with losses totaling $0.22 per share despite sales coming in ahead of estimates at $193.4 million.
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As of 10:50 a.m. ET, Cerebras stock is down 16.2%.
Image source: Getty Images.
Cerebras Q1 earnings
Accenting the positive, Cerebras pointed out that its revenue (which beat estimates) grew 92% year over year, and is likely to keep growing thanks to a $20 billion deal to sell AI chips to OpenAI over several years.
The company also pointed out that its recent IPO raised $6.4 billion to fuel future growth, and was the "largest semiconductor IPO of all time" -- for a company that provides "wafer-scale technology [that] delivers the fastest AI in the world."
What's next for Cerebras?
Although the company "missed estimates" in Q1, rising gross margins helped Cerebras cut its losses in half versus a year ago, to just $0.22 per share. This didn't completely reassure investors, however, because Cerebras noted its "core" gross margin in Q1 was 47%, but is likely to drop into the 36% to 38% range in Q2, and average only something between 38% and 41% for the year as a whole.
Translation: Losses shrank in Q1, but they might begin growing again this quarter -- and all year long.
That's not what investors were hoping to hear, I fear. It's the reason why Cerebras stock is now down 45% from its IPO opening price -- and an object lesson in the risks of investing in hot IPOs.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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