Cerebras Stock's Volatility Comes as AI Stock Momentum Is Slowing. Should Investors Be Worried?

After a blockbuster IPO just a few weeks ago, Cerebras (NASDAQ: CBRS) stock has nosedived recently. The company reported its first-quarter 2026 results on June 24, its first earnings report since going public, and Cerebras shares fell nearly 12%.

Notably, Cerebras' sales outpaced analysts' consensus estimate for the quarter, and its losses narrowed. Usually, that would cause most stocks to rise. But investors are increasingly concerned that the investments AI companies are making may not pay off in the long term. Which is why leading AI companies like Nvidia and Broadcom are seeing their share prices drop lately, too.

Here's what's happening and what Cerebras shareholders should know.

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Strong revenue results, disappointing margins

Some of the results from Cerebras' first quarter were very good, including the company's revenue jumping 94% year over year to $193 million, beating Wall Street's consensus estimate of $181 million. Cerebras' operating loss of $3.5 million was also smaller than expected and a huge improvement over its $19.3 million loss in the year-ago quarter.

But Cerebras shareholders looked past these results and focused instead on management's comments that profitability was declining due to its $20 billion contract with OpenAI. The company's leadership said that to increase capacity for OpenAI, it will rent out some of its systems rather than sell them, which will reduce some of its cloud and services margins this year.

Management said adjusted gross margin will be between 38% and 41% for 2026, compared with 47% in the first quarter. Once it moves away from renting some of its systems and back to selling them, it expects margins to rise again.

While the decline appears to be temporary, Cerebras stock's sell-off after the results were published was telling. Tech investors, in general, are becoming increasingly skeptical that big investments in AI will pay off, and they're scrutinizing declines in profitably.

Some chip stocks are feeling the pressure right now

The pressure on Cerebras' stock is happening against the backdrop of declines for many AI chip stocks. Over the past month, Nvidia shares and Broadcom stock are down about 9%, as of this writing.

While many AI stocks have experienced huge gains over the past few years, some investors fear that the hundreds of billions of dollars being poured into AI may never translate into profits, prompting some to take their current gains and seek safer investments.

Investors aren't wrong to question some of the spending. At some point, there will be a slowdown in tech companies' spending. While no one knows when that will be, some people are concerned that rising inflation could lead the Federal Reserve to raise interest rates sooner than previously expected. Core inflation rose to 3.4% in May, its highest level since October 2023.

Adding to the volatility for Cerebras and many of its peers is the fact that their share prices are already trading at a premium. Cerebras stock has a trailing price-to-sales (P/S) ratio of 74, while the tech sector's P/S ratio average is about 10.

There's a classic risk-versus-reward assessment happening among investors right now. And some people are beginning to think that tech companies are taking on too much risk (via AI investments) without enough of the reward (profits).

Cerebras is in a particularly difficult position because its shares are expensive and its profit margins are declining.

Cerebras has promising technology, including large wafers used for AI processing, but shareholders should understand the company's risks. Higher costs are reducing profitability, and any slowdown in infrastructure spending by large tech companies could add pressure.

It's too soon to call an end to the AI chip stock run -- Micron Technology just reported strong third-quarter results, after all -- but Cerebras and other AI investors may want to brace for more turbulent months ahead as AI spending comes under scrutiny.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.