Cerebras Systems, a pioneer in AI chip technology, seeks to make history as the first major venture-backed company to go public in the United States since April. With the backdrop of a booming AI infrastructure market largely driven by Nvidia—a company now valued at a remarkable $3.3 trillion—Cerebras aspires to leverage this wave of investor enthusiasm. However, the road to a successful initial public offering (IPO) is laden with significant challenges, primarily the company’s heavy dependence on a singular Middle Eastern clientele. This article examines the opportunities and obstacles facing Cerebras as it navigates the tumultuous waters of the public market.
Cerebras launched in 2016 and made waves in 2019 with the introduction of its first processor, which the company claims outperforms Nvidia’s graphics processing units (GPUs) in efficiency and speed, particularly for training complex language models. By 2023, Cerebras reported a startling sales surge, with revenue exceeding $78.7 million, and an even more impressive jump to $136.4 million in the first half of 2024. Such growth can be attributed to signed agreements amounting to $1.43 billion in system orders, demonstrating a robust competitive position in the AI sector.
However, potential investors should scrutinize these achievements through a lens of caution. The rapid growth in revenue may not be as sustainable as it appears, particularly when considered against the backdrop of Cerebras’s dependency on G42, a single client based in Abu Dhabi, which constituted a staggering 87% of the company’s revenue for the first half of the year. This concentration raises red flags; a sudden reversal of fortune for G42 could jeopardize Cerebras’s financial stability.
The reliance on G42 is particularly concerning given the geopolitical sensitivities surrounding foreign investments in U.S. technology firms. G42, backed by Microsoft, has entered into a substantial purchase agreement with Cerebras, committing to buy $1.43 billion in systems and services by 2025. Nevertheless, legislative scrutiny looms large, especially amid anxieties regarding G42’s alleged historical connections with Chinese companies. The Committee on Foreign Investment in the United States (CFIUS) is currently reviewing Cerebras’s relationship with G42, and the potential ramifications of this review could lead to significant delays or complications for the IPO.
David Golden, a seasoned investor, voiced strong reservations about Cerebras’s customer dynamics, suggesting that such a lopsided dependency on one customer would likely be deemed too risky by rigorous underwriting committees. In this context, Cerebras must not only convince the investment community of its technological prowess but also address the pronounced concerns surrounding its customer base.
Compounding its woes, Cerebras’s IPO efforts are hampered by the absence of major investment banks traditionally involved in tech IPOs. Heavyweights such as Goldman Sachs and Morgan Stanley have opted to sit on the sidelines due to the perceived risks tied to customer concentration and foreign investment uncertainties. Instead, Citigroup and Barclays are heading this deal. While both are reputable global banks, they lack the same elite status that often begets a more lucrative initial public offering.
The involvement of BDO, a lesser-known auditing firm, further complicates Cerebras’s position. In stark contrast, other recent tech IPOs have employed Big Four firms like KPMG and PwC, which pedestrians the path toward greater investor confidence. This undermines the perceived credibility of the deal and further deters potential investors wary of unrecognized players.
Despite these obstacles, Cerebras stands at the edge of a breakthrough. The company boasts a novel chip—dubbed the WSE-3—that it claims is “the fastest AI processor on Earth.” Given the massive growth potential of the AI market, fueled by the insatiable demand for processing power, Cerebras’s innovative technology could position it as a serious contender in this competitive arena.
However, with significant losses reported—which stood at nearly $51 million in the second quarter—investors must approach Cerebras’s financial health with skepticism. Notably, barring stock-based compensation, the company’s operating losses are less severe, highlighting a fine line between potential and scalability.
While Cerebras presents an enticing opportunity in the evolving landscape of AI technology, investors must carefully weigh the risks against the potential rewards. The impending IPO is fraught with challenges that could deter would-be investors, from overrated customer dependency to the absence of top-tier financial backing. In an environment where Nvidia dominates the AI hardware market—accounting for a staggering 95% of the sector—Cerebras’s journey toward public scrutiny will depend on not only its technical innovations but also its ability to diversify its customer portfolio and secure regulatory approvals. The intersection of groundbreaking technology and complex market dynamics will ultimately determine whether Cerebras can successfully navigate the stormy seas of its IPO ambitions.