AI Chipmaker Cerebras Delivered Its First Quarterly Financial Report. It Offers an Important Lesson for SpaceX Investors

Space Exploration Technologies (NASDAQ:SPCX), aka SpaceX, has been the talk of the town. The rocket launch, satellite, and artificial intelligence (AI) company had its initial public offering (IPO) earlier this month, and to say it was a success might well be an understatement. The company raised $85.7 billion, the stock jumped 19% on its first day of trading, and its market cap jumped to a cool $2 trillion.

And while it was undoubtedly the biggest, SpaceX wasn't the only blockbuster IPO so far this year. AI chipmaker Cerebras Systems (NASDAQ:CBRS) debuted to much fanfare last month, soaring 68% on its first day of trading after selling 34.5 million shares in all and raising $6.38 billion. Moreover, the successful debut was seen as paving the way for the upcoming SpaceX IPO.

Cerebras reported its first financial results as a public company, offering an important lesson for SpaceX investors. Let's dive into the details.

Image source: The Motley Fool.

All investors wanted and more

For the first quarter, Cerebras generated revenue of $193.4 million, up 94% year over year and 13% sequentially. The results were driven higher by hardware revenue of $110.6 million, up 59% year over year, and by cloud and other services revenue, which surged 178% to $82.8 million. The company also edged closer to profitability, with an adjusted loss per share of $0.04.

For context, Wall Street's consensus estimates were guiding for revenue of $181 million and an adjusted loss per share of $0.16, so the chipmaker surpassed expectations on both counts.

Cerebras highlighted several recent wins that bode well for the future. The company entered into a multi-year partnership with Amazon Web Services (AWS) to bring its fast AI inferencing technology to the company's cloud customers. It also underscored a multi-year agreement with start-up OpenAI to provide 750 megawatts (MW) of computing capacity, in a deal valued at $20 billion.

The chipmaker provided an upbeat forecast. For the second quarter, Cerebras is guiding for revenue of $194 million, up 88% year over year, outpacing Wall Street's estimates of $174.3 million. The company also increased its full-year guidance for core revenue to a range of $855 million to $865 million, well ahead of expectations for $828 million. Management noted that its 47% gross margin would narrow as the year progressed.

Cerebras' Wafer Scale Engine (WSE) is an AI chip that uses the entire silicon wafer, rather than cutting it down into hundreds of smaller chips. This process keeps all processing on a single chip, reducing the latency (time delay) inherent in communication between semiconductors.

Management noted that this gives the company an advantage over the competition, as it "delivers the fastest AI in the world." Speed is increasingly important in AI, as users seek answers and solutions more quickly.

This is all good news, right? In response to better-than-expected results and an improved outlook, the stock plunged 18% (as I write this).

What does this have to do with SpaceX?

The first few quarters can be fraught with peril for any newly public company -- particularly in the wake of a blockbuster IPO. Investor expectations can be unrealistic, and the results may not go to plan, causing increased volatility. The stock could face a reckoning when SpaceX reports its first quarterly results in late July or early August.

Moreover, the volatility could be amplified, as the company's staggered lockup expiration will likely complicate matters. Specifically, the first tier will be released just two days after SpaceX reports results, allowing the sale of 20% of shares held by employees and early investors. Furthermore, if the stock trades at 30% above its IPO price -- or $175 -- that could trigger the release of another 10% of insider shares.

Finally, SpaceX is selling for 110 times sales and 54 times next year's expected sales, which is exorbitant by any measure. A valuation of this magnitude will likely amplify volatility even further.

SpaceX could deliver a stellar earnings report, outpacing Wall Street expectations across the board -- and the stock could still plunge.

Forewarned is forearmed.

Danny Vena, CPA has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.