Cerebras Systems Shares Drop 20% Despite Strong Q1 Earnings on Margin Forecast Concerns
Quick Look
- Cerebras Systems' shares fell nearly 20% despite exceeding Q1 earnings expectations, as the AI chipmaker forecast a narrower full-year gross margin of 38-41%.
- CEO Andrew Feldman attributed this to temporary equipment rental from a customer to boost capacity.
AI-generated summary
Why It Matters
Cerebras Systems reported better-than-expected first-quarter earnings but forecast a narrower full-year gross margin, leading to a significant stock drop. The CEO explained the margin guidance was misunderstood, citing a temporary need to rent equipment back from a customer.
Shares of Cerebras Systems dropped almost 20% on Wednesday, even after the company delivered better-than-expected first-quarter earnings on Tuesday.
That’s because in its first earnings report since going public, the AI chipmaker forecast a narrower gross margin in its core business, guiding for a full-year margin of 38% to 41%, compared with the 47% reported in the first quarter. The stock hit a new low on Wednesday, almost hitting the company’s IPO price.
Cerebras CEO Andrew Feldman told CNBC that investors had misunderstood the company’s margin guidance, noting that Cerebras will need to rent back some equipment from one of its largest customers.
The company said during its earnings call that it decided to make more capacity available sooner by temporarily renting its own systems back from an existing customer while it builds out and deploys its own data center capacity. The company said this would cut into profit margins this year.
According to the company’s earnings report, revenue for the quarter reached $193 million, up 94% year-over-year. Net loss narrowed to $14 million, down from $23.9 million a year earlier.
Open Questions
- How long will Cerebras need to rent equipment from its customer?
- What is Cerebras's long-term gross margin target?
- How will Cerebras's data center capacity build-out progress?
