Over the years, chipmaker Nvidia has significantly increased the wealth of its investors. Investing in artificial intelligence (AI) has generally been a beneficial strategy, with numerous AI stocks achieving new highs due to the enthusiasm and optimistic outlook for next-generation technologies.
For those who are interested in Nvidia’s stock but seek diversification or are looking to invest in a company in the earlier stages of growth, Cerebras might present a new opportunity if it goes public.
Potential of Cerebras as a Major AI Stock
Cerebras is a technology company that could potentially offer substantial competition to Nvidia in the future. The company boasts of having "the world’s largest, most powerful commercially available chip," known as the Wafer-Scale Engine. The third generation, the WSE-3, is described as being 57 times larger than the leading commercially available GPU and possessing 52 times more compute cores, which makes it highly suitable for AI training.
Like many companies in the AI sector, Cerebras is experiencing notable growth. In the first half of 2024, the company generated $136.4 million in revenue, already surpassing the $78.7 million posted for the entire year of 2023, which was more than triple the $24.6 million earned the year prior. Founded in 2016, Cerebras began generating revenue in 2019.
Notable Risks Involved
Cerebras is experiencing rapid growth and its potential appears promising, especially if its chip meets expectations. However, the business has yet to become profitable. In the first two quarters of the year, the company reported a net operating loss of $41.8 million, though this is an improvement from a loss of over $81 million the previous year. As the company expands operations and enters new markets, it will likely incur more expenses.
Another risk is that a large portion of the company’s revenue is dependent on a single customer, Group 42 Holding, an AI company based in the United Arab Emirates. This customer accounted for 83% of Cerebras’ revenue in 2023, a figure that rose to 87% this year.
Typically, investors might expect this percentage to decrease as the company expands. However, since Cerebras is in its early growth stages, this has not yet occurred. The heavy reliance on one customer poses a risk, as fluctuations in demand from Group 42 could significantly impact Cerebras’ sales and profits.
Consideration for Investing in Cerebras
Cerebras might go public later this year, potentially offering an exciting early investment opportunity. In 2021, the company was valued at approximately $4 billion. Given its growth and the excitement surrounding AI, its value is likely to have increased, though it is expected to remain below Nvidia’s valuation.
Investing in initial public offerings can be risky as it often involves companies in early growth stages, such as Cerebras. However, if the company and its chips prove successful, the potential upside could be substantial. While the stock might not suit all investors, those with a high-risk tolerance who are seeking the next significant AI stock might consider investing in Cerebras from the start.
