Cerebras shares tumble 20% as AI chipmaker warns of margin compression

Shares of Cerebras Systems fell nearly 20% on Wednesday following the release of its first earnings report since listing on the public markets. The decline occurred despite the artificial intelligence chipmaker delivering better-than-expected first-quarter results, with investors reacting negatively to guidance indicating a significant contraction in profit margins for the remainder of the year.

The company reported first-quarter revenue of $193 million, representing a 94% increase year-on-year. Additionally, the net loss narrowed to $14 million, a marked improvement from the $23.9 million loss recorded in the same period last year. However, the market focus shifted immediately to the company’s outlook for its core business, where it forecast a full-year gross margin of 38% to 41%, down from the 47% margin achieved in the first quarter.

Cerebras CEO Andrew Feldman stated that the market reaction was driven by a misunderstanding of the guidance. He clarified that the reduced margin is a temporary consequence of a strategic operational decision to rent systems back from an existing customer. This move is designed to increase capacity and make more resources available sooner while the company constructs and deploys its own data centre infrastructure.

The earnings call detailed that the company intends to temporarily lease back equipment from one of its largest clients to bridge the gap in supply. Cerebras noted that this arrangement would cut into profit margins for the current year but is necessary to support immediate demand while long-term capacity expands.

Following the report, the stock hit a new low, approaching the company’s initial public offering price. The sell-off underscores the sensitivity of investors to near-term profitability metrics in the high-growth artificial intelligence sector, even when underlying revenue growth remains robust.