Should You Buy the Cerebras IPO? Here's How the AI Chip Stock Stacks Up.

Cerebras is expected to make its public debut on Thursday, and investors just can't wait. After its initial public offering (IPO) filing a couple of weeks ago, the offering is 20 times oversubscribed, leading the company to increase its target share price to between $150 and $160 and increase the number of shares offered. The high end of that range would value the company at roughly $48.8 billion.

That might seem like small potatoes compared to competing AI semiconductor stocks like Nvidia (NASDAQ: NVDA), which is worth more than 100 times that amount. Broadcom (NASDAQ: AVGO) is worth nearly $2 trillion, and AMD's (NASDAQ: AMD) market cap tops $700 billion. But with Cerebras' excellent technological capabilities and potential disruption of AI inference data centers, investors might think it has a shot at competing with the big boys. Should you buy the stock at its IPO?

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What's the advantage of using Cerebras' chips?

Cerebras designs wafer-scale chips that use an entire 12-inch silicon wafer. The result is a chip roughly 30 times the size of Nvidia's Blackwell B200 package with 19 times as many transistors per chip, Cerebras notes in its S-1 filing.

Making chips at that scale is no easy feat, but it comes with significant advantages. Since connections between logic cores and memory capacity are etched right into the silicon, Cerebras chips can process data much more quickly while using less power. Additionally, there's less overhead needed for networking and interconnect between chips. The result is a chip that can perform many AI inference tasks much more quickly and at lower costs than a traditional graphics processing unit (GPU) cluster setup.

That's why Cerebras' infrastructure has caught the attention of OpenAI and Amazon (NASDAQ: AMZN) Web Services (AWS). OpenAI has committed $20 billion to rent 750 megawatts' worth of capacity directly from Cerebras between 2026 and 2028. Amazon plans to buy Cerebras' chips to work in conjunction with its own Trainium chips in Amazon-owned data centers.

What are the risks facing Cerebras?

There are some major risks facing Cerebras as it makes its public debut.

First and foremost, investors will note that Cerebras' backlog climbed to $24.6 billion at the end of 2025, with the majority of that attributable to its contract with OpenAI. In other words, Cerebras faces severe customer concentration risk. The AWS deal will diversify that revenue a bit, but Cerebras will likely have to prove itself before attracting more customers to its data center business.

To that end, the company faces execution risk. It'll have to stand up 250 megawatts of computing capacity for OpenAI by the end of the year. Management has never built or operated a data center of that size before. If it encounters any issues scaling, it could negatively affect its OpenAI contract and its ability to attract additional customers.

Adding to the scaling challenge is that Cerebras' chips are manufactured by Taiwan Semiconductor Manufacturing (NYSE: TSM), which has seen tremendous demand for its services. Some of TSMC's biggest customers are exploring options for secondary sources, as the largest chip manufacturer sees growing demand for its leading-edge technology. TSMC, meanwhile, is retrofitting many of its existing facilities to add capacity for its leading-edge N3 and N2 processes while reducing capacity for N7 and N5.

Cerebras notably uses TSMC's N5 process for its wafer-scale chips. No other chip manufacturer can viably produce wafer-scale chips, creating a significant supply chain risk for Cerebras as it scales.

How does Cerebras stack up with other AI chip stocks?

There's no doubt that a small company with a massive backlog relative to its current revenue deserves a premium valuation even with the risks outlined. Cerebras already has the backlog in place to grow its revenue tenfold within a few years as long as it executes. At a valuation of $48.8 billion, it would trade for roughly 96 times its 2025 sales.

To put that in perspective, Nvidia currently trades for 25 times trailing-12-month sales. Broadcom trades for 29 times sales, and AMD trades for 19 times sales. Importantly, none of those companies are expected to grow their top lines as quickly as Cerebras. Still, none of them are slouches. Broadcom and AMD are each expected to double their revenue from 2026 to 2028, and Nvidia's expected to grow its top line 57%. What's more, Nvidia, Broadcom, and AMD are much less risky than Cerebras.

Cerebras' technology is compelling, but it's not a complete replacement for the chips made by Nvidia, AMD, or Broadcom. It will remain a subset of the overall AI chip market even as that subset continues to grow quickly. The $48.8 billion price tag on Cerebras' IPO looks like too much of a premium to pay, and investors may be better off waiting to see if the market offers a better entry point for the stock later.

Adam Levy has positions in Amazon and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.