Cerebras Stock Looks Like a Buy Due to an OpenAI Relationship and Surging Revenue

After Cerebras Systems (NASDAQ: CBRS) reported its second-quarter results after the close on Aug. 12, its shares sank 16% over the following two trading sessions, although the stock bounced back after the investment advisor Wedbush Securities praised the company for powering OpenAI's ultrafast mode for its GPT-5.6 Sol model.

The chipmaker's stock is now down by around 43% from the high it touched shortly after its initial public offering earlier this year, and the stock looks like a buy as inference demand soars.

Cerebras makes systems built around its wafer-scale chips -- processors the size of dinner plates that are made from a whole silicon wafer. They can contain a large amount of static random-access memory (SRAM), which is an advantage, but they also require special cooling and power management, which makes them a premium option.

However, having many standard chips' worth of hardware on a single extra-large chip also makes them super-fast and ideal for the decode phase of inference. The company is teaming up with Advanced Micro Devices, whose Helios solution will cut down costs and offer strong value. It also has big deals in place with OpenAI and a partnership with Amazon through Amazon Web Services that is expected to go live early next year.

Soaring revenue and improving gross margins

Cerebras saw 74% revenue growth in the second quarter, with sales climbing to $180.1 million. Its core sales figure, which strips out revenue distortions caused by customer warrants and pass-through accounting, more than doubled to $209.9 million.

More and more customers are renting out its systems, which led to its cloud revenue surging 281% year over year to $126 million, and its core cloud revenue soaring 287% to $127.7 million. Hardware revenue sank 23% year over year to $54.1 million, while core hardware revenue rose 17% to $82.1 million.

Gross margins have been a point of contention for the company. Its core gross margins came in at 40.6%, up 940 basis points versus a year ago. Core gross margin for its cloud operation was 41.8%, a 1,600 basis point year-over-year improvement, while core hardware gross margin was 38.8%, 510 basis points higher than a year earlier. However, core gross margin fell sequentially from 46.5% in the first quarter due to higher costs from renting back systems to meet urgent demand.

Management projected third-quarter revenue of between $214 million and $216 million, with core gross margins between 38% and 40%. Cerebras also upped its full-year guidance, taking its core revenue forecast to a range of $880 million to $890 million, up from a prior outlook of $855 million to $865 million. It now sees its core gross margins coming in between 41% and 43%, up from an earlier projection between 38% and 41%.

For 2027, management is looking for core revenue to surge more than threefold and is expecting strong growth in 2028 and beyond. It is projecting core gross margins to improve in 2027 and move toward its 60%-plus long-term target.

Image source: The Motley Fool.

Time to buy the stock

The AI inference market is heating up, and the size of that segment is expected to eventually become much larger than AI training for Cerebras. Bloomberg Intelligence is projecting it will grow at a 32% compound annual rate through 2032 to reach $1.3 trillion, nearly double the size of the AI training market. While Nvidia dominated the AI processor market when it came to hardware for training, the inference market looks like it will have multiple winners, including Cerebras.

Although the company's systems are a more expensive option, their superior performance should help it gain its fair share of this rapidly growing segment. The OpenAI announcement is the perfect example of the opportunity in front of Cerebras at the high end of the market.

Meanwhile, I really like its partnership with AMD. A combined solution, where AMD chips can more cheaply handle the pre-fill inference phase -- the initial stage of large language model inference -- should be very compelling and help give customers the best of both worlds. Cerebras' deals with OpenAI and Amazon also provide a strong core customer base, and over time, its customer base should expand.

Given the growth of the inference market and the huge opportunity ahead of it, Cerebras looks like a solid buy, albeit a speculative one, on its recent price dip.

Geoffrey Seiler has positions in Advanced Micro Devices and Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool has a disclosure policy.