Cathie Wood Bought Cerebras Systems Stock the Same Week the AI Chip Startup's Shares Fell More Than 58% From Their First-Day IPO Pop

One of the hottest IPOs of the year cooled considerably after publishing its first earnings report as a publicly traded company. Cathie Wood's Ark Invest pounced on the stock's weakness to bolster its position.

I'm talking about Cerebras Systems (NASDAQ: CBRS), the unique artificial intelligence (AI) hardware company that had a splashy market debut in May. Initially greeted as The Next Big AI Stock, Cerebras shares have retreated from that early hype and hope. Here's a glance at Ark's buy-ins of this unique tech company, with a sharp look at those post-earnings transactions.

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Artificial intelligence, real hope

Wood and her team were enthusiastic buyers of Cerebras from the get-go, snapping up 105,616 shares on its first day of trading in mid-May for around $32.8 million.

That averages to $310.56 per share, just shy of the level at which the stock closed that trading session (it had opened at $350, well above its $185 IPO price, but ultimately settled lower). In follow-on purchases, Ark added to its Cerebras holdings.

Those purchased shares were placed into two Ark exchange-traded funds (ETFs), Ark Innovation ETF and Ark Next Generation Internet ETF. In three subsequent trading sessions that month, Ark loaded up on an additional 226,430 shares and placed them into the two ETFs.

The more interesting purchases occurred the following month. It was surely no coincidence that these were made just before and after Cerebras released that earnings report.

With two pre-earnings buys, Ark paid around $28.27 million for 124,949 shares. Just after earnings were released, Ark again loaded up, purchasing 111,989 shares for $20.41 million. The average per-share price of the pre-earnings moves was $226.25, while that for the after-earnings action was $182.26.

Inflated expectations

Cerebras took a hard hit to its stock price after earnings. It's not that the fiscal first quarter was disastrous; actually, the company posted robust 92% revenue growth and did a good job narrowing its net loss. More encouragingly, it announced partnerships with cloud heavyweight Amazon Web Services and top AI developer OpenAI.

The catch was that the company's lofty premium to its IPO price at the time required significant outperformance, and investors didn't get it. Mr. Market punished Cerebras by sending its shares to a new low of under $161 apiece. They've since recovered somewhat, to almost $200. Ark's post-earnings buys then look wise now.

Cerebras' specialty is wafer-scale engine (WSE) technology -- essentially a powerful processor stamped on a single, large silicon wafer, as opposed to a standard graphics processing unit divided into hundreds of small chips. This is ideal for AI inference (the execution phase of AI models, as opposed to training).

Generation speeds are much faster with WSEs, giving Cerebras a huge technological advantage with inference.

That's a major reason for the immediate post-IPO excitement and the disappointment behind the otherwise very promising company's earnings report. Even after the price tumble, Cerebras' valuations are high. If the company can realize its vast potential, though, the stock could really soar.

I'd bet that's what Wood and her managers are betting on, and investors with a similarly high risk tolerance and some patience should consider doing the same.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.