Cerebral Systems (NASDAQ: CBRS) took the market by storm last week when it rose 68% on its first day of trading. The reason for the excitement is clear. Cerebras offers something that’s in dire need right now: a powerful AI chip to power it. In fact, the company even claims that its chip has surpassed the performance of graphics processing unit (GPU)-based systems – here, we can think of the AI chip market leader, Nvidia (NASDAQ: NVDA)known for its GPUs.
Thanks to this market dominance, Nvidia has delivered huge gains for investors in recent years — in fact, over the past five years, the stock is up 1,400%. Fueling this performance has been strong earnings growth. AI companies have flocked to Nvidia for computing, and this has helped revenue reach record billions of dollars. The AI giant ended the most recent full year with revenue of more than $215 billion, representing a 65% increase.
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Now, as Cerebras takes its first steps as a publicly traded company, it makes sense to ask the following: Could this small AI company be the next Nvidia? Let’s find out.
A big chip for Cerebras
So, first, let’s consider what makes Cerebras look so promising right now. The company has built a chip that is 58 times the size of Nvidia’s B200 chip, and this size allows it to deliver higher speeds. Cerebras claims its Wafer-Scale Engine (WSE) delivered 15 times faster inference — this is the “thinking” process of the language model — than GPU-powered systems. And in some cases, Cerebras says its chips are 1,000 times faster. Cerebras’ WSE 3 includes 4 trillion transistors to accommodate a specific task – the company compares this to Nvidia’s package of two GPUs that hold 208 billion transistors.
Customers may access WSE by ordering platforms for their own data centers or by running them through Cerebras Cloud or a third-party cloud. And Cerebras saw revenue gains as customers flocked to this exciting solution. Revenue increased by nearly 2,000% from 2022 to last year, when it came in at $510 million.
Investors clearly liked Cerebras’ progress in the AI market as the stock soared on its first day of trading — May 14 — and the company raised $5.5 billion in its biggest IPO this year. In the next session of trading, however, the stock gave back some of the gains.
Cerebras vs Nvidia
Now, let’s compare Cerebras and Nvidia. It operates in the same space as the market leader, and they share the goal of making AI tasks faster and more efficient for customers. But it is important to note that their stories are very different. Nvidia was founded more than 30 years ago and has been building GPU technology and market presence for that time. The GPU initially served the video gaming market, but as Nvidia realized the broader potential of the chip, the company created a common computing platform — CUDA — to pave the way for this expansion.
Nvidia then saw the opportunity of AI early on and decided to design GPUs specifically for this market. At the time, the small Cerebras, founded in 2015, set its sights on providing computing to handle the huge demands that AI would bring.
Nvidia today continues to serve the gaming market and has expanded into AI, offering solutions tailored to specific industries — from robotics to healthcare. Nvidia’s biggest customers are tech giants like Microsoft again Amazonbut the company works for smaller players as well.
What can cause vulnerability
Cerebras has seen an increase in revenue, but one problem is that revenue comes from a limited number of customers — that creates a risk because if one of these customers reduces spending, Cerebras could feel the impact. Last year, contracts with the Mohamed bin Zayed University of Artificial Intelligence in the United Arab Emirates accounted for 62% of revenue. And Cerebras said in its prospectus that its reliance on this client, along with Group 42 Holding Ltd and OpenAI, “exposes us to a number of risks.”
To become the next Nvidia, Cerebras must significantly expand its customer base to include US tech giants and others around the world. The company also has to demonstrate its strengths in AI over time — and we should see this reflected in earnings reports, with revenue growth and ultimately profitability.
While profits may come, it may be difficult for a newcomer like Cerebras to build an empire — after all, Nvidia’s rise came after decades of research and development.
As for the stock price, history shows that new IPO companies do not do very well in their early years. Excluding first-day returns, IPO stocks have underperformed other similarly sized companies by 3.6% annually in the five years following their performance, according to Jay Ritter, a finance professor at the University of Florida. So, if history is correct, Cerebras may not be on the path to Nvidia-style racing.
Is Cerebras the next Nvidia? From a product, earnings, and stock performance perspective, I don’t see this happening in the near term. But, as mentioned, Nvidia became the Nvidia we know today after decades of work. So, over timeif Cerebras builds on its strengths and expands across customers and industries, it could become the new Nvidia.
Should you buy stock in Cerebras Systems right now?
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Adria Cimino has positions in Amazon. The Motley Fool has positions and recommends Amazon, Microsoft, and Nvidia. The Motley Fool has a policy of disclosure.
Could Cerebras Be The Next Nvidia? was originally published by The Motley Fool
