Cerebras Is Down 22% Since Its IPO Popped. Should You Buy It Now?

Shares of artificial intelligence (AI) chipmaker Cerebras (NASDAQ: CBRS) soared 68% on its first day of trading, but the hangover has been brutal for those who have continued to hold the stock. Shares are down over 22% as of this writing since the close on May 14.

After the pullback, investors may be wondering if now is the time to buy shares.

Image source: The Motley Fool.

High performance and high expectations

What separates Cerebras from other AI chipmakers like Nvidia (NASDAQ: NVDA) is its wafer-scale engine technology. Instead of printing multiple chips per silicon wafer that get separated, Cerebras fills the entire 12-inch wafer with chips meant to work together. That allows it to integrate multiple cores and memory in the silicon, increasing the speed at which it can process data. Transferring information between memory and other processing chips has been the biggest bottleneck for AI inference so far, and Cerebras's massive chips promise to reduce that challenge.

The biggest concern with Cerebras's chips is that those efficiencies might not scale to larger models. It's simple enough to demonstrate greater speed when running an entire model on a single system. But scaling to a much larger model across a cluster of Cerebras's chips might not produce the same speed advantages.

In response to concerns about its ability to scale to larger models, Cerebras has demonstrated Kimi K2.6 -- a trillion-parameter open-weight model -- running on a cluster of about 20 Cerebras systems. It claims this model can produce outputs 6.7 times faster than the next-closest competitor.

The difference can be even more substantial in larger reasoning models and AI agents that recursively call the model. Recursive calling feeds the output of a model back into itself to iteratively solve complex problems, refine work, or generate sequential data. Inference time compounds with each call, leading to significant lags between input and output.

Indeed, OpenAI is betting heavily on Cerebras's ability to handle a variety of different workloads for its users. It signed a $20 billion deal for up to 750 megawatts of capacity to be delivered in multiple tranches through 2028.

Meanwhile, Amazon's Amazon Web Services sees Cerebras's chips as a valuable tie-in for its own cloud computing system, pairing them with its Trainium chips using a technique called "inference disaggregation." That allows Amazon to use the Trainium chips for computationally intensive inference work with limited memory bandwidth requirements before using Cerebras's chips for the high-bandwidth work, which its systems excel in.

Is now the time to buy Cerebras stock?

Cerebras's deals with OpenAI and Amazon represent a huge backlog of potential revenue headed its way. Remaining performance obligations totaled $24.6 billion as of the end of last year for the chipmaker. The vast majority of that is tied to its deal with OpenAI, and it expects to recognize approximately 15% of that amount within 24 months.

That should lead to meaningful revenue growth with room to easily double sales in each of the next two years. But remaining performance obligations aren't guaranteed revenue, and there are some significant risks facing the chipmaker for investors to consider before banking on the top line doubling twice in the next two years.

First, Cerebras has to prove that it can scale both production and operations. The OpenAI deal requires it to build and operate massive data centers with thousands of chips. It could face setbacks at multiple points, from real estate acquisition to construction to chip production.

Cerebras relies on Taiwan Semiconductor Manufacturing for production. It's the only contract chip manufacturer capable of producing its wafer-scale chips. Cerebras's latest generation chip uses TSMC's 5-nanometer process. Meanwhile, TSMC is seeing significant demand for its 3nm and 2nm processes from companies like Nvidia, pushing it to retrofit equipment running its 5nm process to support the massive demand it's seeing from leading chipmakers. TSMC will be more loyal to its biggest customers when capacity is limited. That could present a challenge for Cerebras if it needs to scale faster than expected or if TSMC faces yield challenges.

Cerebras also faces significant customer concentration risk, which is compounded by its execution risk. If Cerebras fails to stand up servers of its chips for OpenAI by its tranche deadlines, it could see a reduction in its contract commitments and in its chances of expanding to new customers in the future.

It's normal for a young company to face significant uncertainty about its future, but investors need to account for that risk in the price they pay. With a market cap of around $55 billion, Cerebras has a price-to-sales ratio of around 108 times 2025 sales. Even if it doubles sales in each of the next two years, that's still 27 times 2027 sales. To put that in perspective, Nvidia trades at about 9.5 times 2027 sales expectations, with far greater certainty about its revenue growth and earnings. At this price, investors still aren't getting a good deal on Cerebras stock, even if its technology offers a compelling alternative to Nvidia's GPUs.

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