Investors who have enjoyed the prosperous returns from Nvidia's stock may find themselves eyeing a promising new prospect in the AI sector: Cerebras. As a burgeoning name in the chipmaking industry, Cerebras could emerge as a formidable contender, possibly even rivaling Nvidia in the realm of artificial intelligence. AI stocks have soared in popularity, reaching unprecedented heights, propelled by the dynamic advancements and promising future of next-generation technologies. For those investors who appreciate Nvidia's success but seek diversification or early-stage growth opportunities, Cerebras represents an intriguing option to consider when it goes public.
Cerebras is a technology company that has gained attention for potentially rivaling Nvidia in the AI space. The company's defining feature is its Wafer-Scale Engine (WSE), touted as the largest and most powerful chip available commercially. The third iteration, WSE-3, is reported to be vastly superior to its leading competitors, being 57 times larger and possessing 52 times more compute cores. Such capabilities make it an attractive choice for AI training applications. Since its inception in 2016 and the start of its revenue generation in 2019, Cerebras has exhibited impressive growth by generating $136.4 million in revenue just during the first half of 2024, surpassing its total from the previous year.
However, investing in Cerebras comes with its own risks. A major one is profitability; the company isn't yet generating profits. Although it recorded a net operating loss of $41.8 million in the first two quarters of 2024, this is an improvement from the over $81 million loss recorded a year prior. As Cerebras expands and scales its operations into new markets, its expenses are likely to increase. Another significant risk is its heavy reliance on a single customer, Group 42 Holding, which represented 87% of its revenue in the current year, up from 83% in 2023. While it's reasonable to expect this dependency to lessen as the company matures, its present concentration poses a substantial risk. Any fluctuation in demand from Group 42 could dramatically impact Cerebras' financial results.
As Cerebras eyes a public offering potentially later this year, it presents investors with the chance to enter at an early stage. Back in 2021, the company was valued at around $4 billion, but given its growth trajectory and the burgeoning excitement surrounding AI technologies, its current valuation is expected to have increased significantly. Even so, it's unlikely to rival Nvidia's valuation any time soon. Engaging in initial public offerings entails inherent risk due to their association with companies in the nascent phases of growth—Cerebras included. Nonetheless, should Cerebras' technological prowess and market adoption align with its promising claims, the potential returns could be considerable for investors willing to embrace the associated risks. For those with a high-risk tolerance and an interest in what might become the next significant AI stock, Cerebras offers a compelling scenario worth considering upon its market debut.
