Shares of Cerebras Systems plummeted over 12% in early trading Thursday, as a mixed second-quarter earnings report raised fresh concerns about the company’s ability to challenge Nvidia in the competitive AI hardware landscape.
The drop highlights growing investor scrutiny surrounding AI-linked stocks, despite massive overall momentum powered by Big Tech’s projected $740 billion AI infrastructure spend this year.
Financial Highlights & Segment Performance
In its second quarterly report since going public, Cerebras presented a shifting business model heavily leaning toward cloud services rather than pure chip sales:
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Cloud Services: Revenue roughly quadrupled year-over-year to $126 million.
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Hardware & AI Chips: Revenue slipped to $54.1 million, down from $70.3 million in the same period last year.
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Profitability: Adjusted gross margin contracted to 40.6%, down from 46.5% in the previous quarter.
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Overall Results: Total revenue fell short of Wall Street estimates, even though the company raised its full-year guidance.
Before the pullback, excitement around Cerebras’s custom AI architecture had pushed its stock up 41% from its $185 IPO price.
Analyst Reaction & Operational Challenges
Wall Street analysts highlighted scaling issues as a primary concern. Morgan Stanley noted that execution remains the core debate, given the rapid operational buildout required to support customer demand. Following the results, firms including Citi and Mizuho trimmed their price targets. However, the median price target tracked by LSEG still reflects a potential 15% upside from Wednesday’s close.
Broader Market Impact: Cisco Also Takes a Hit
The caution around AI-related valuations extended beyond Cerebras. Cisco Systems saw its shares slide nearly 8% after issuing a forward outlook that failed to meet heightened market expectations. Despite the dip, Cisco remains up over 60% year-to-date, backed by a projection of $7.5 billion in AI infrastructure orders from hyperscalers through fiscal 2027.
