To The Moon

I confessed; I was pleasantly surprised when I came across the post on Cerebras.

Why ?

It is because I have just share about Cerebras in a post, dated 22 Sep 2024, barely 2 weeks ago. (click here ! to read)

And, I am here sharing the latest.

With demand for AI chips soaring, the 8-year-old California-based AI chipmaker Cerebras Systems has just filed paperwork with the Securities and Exchange Commission (SEC) in preparation for an initial public offering (IPO), without

• Disclosing the number of shares in the offering.

• The expected price.

• The timing of the deal.

Cerebras is a competitor to companies such as $NVIDIA Corp(NVDA)$ and $Advanced Micro Devices(AMD)$ etc.. but mainly the former.

Given strong demand for chipmaker stocks, the company has applied to list on US exchange - Nasdaq under the ticker symbol CBRS.

Although, no listing date has been announced yet, a source familiar with the plans said the company is aiming for later this month.

An IPO from Cerebras could also help kick-start a still-sluggish market for US listings, which have seen a significant slowdown following a flurry of activity during and after the pandemic a few years ago.

Profitability.

If investing, you will be aware that Cerebras is still operating in the red!

Based on its S-1 filing:

• In November 2021, the self-described AI company has raised $250 million in venture funding, at a valuation of $4 billion.

• The company saw a net loss of -$66.6 million during H1 2024.

• With sales coming in roughly at $136 million.

• It also saw net losses of -$127.2 million (2023) and -$177.7 million (2022), respectively.

• For FY 2023 Cerebras reported sales revenue of $78.7 million, up +220% YoY from FY 2022’s revenue of $24.6 million.

The “diminishing loss & increasing revenue” numbers appear to be trending in the right direction.

Also noted in the filing notes — losses from H1 2024 represent a -14% YoY reduction.

Based on Renaissance Capital’s estimates, the impending IPO could generate $800 million, at Cerebras disposal.

All About Cerebras.

Cerebras Systems is about to become the first chip maker to go public during this current boom in artificial-intelligence (AI) technology.

It is known for making the world’s biggest computer chips in terms of physical size, which it markets as rivals for those made by Nvidia and AMD.

In my previous post. (click blue link to read), I have covered in detail:

• What makes Cerebras ticks.

• Why it is a “compelling” buy if ever it IPOs.

Customers & Challenges.

The company is largely focused on different customers than the major US technology companies whose business has driven Nvidia’s stunning rise.

Financial challenge.

Cerebras’s current biggest customer is Abu Dhabi-based AI software and services company G42.

As documented in its IPO filing:

• G42 accounted for 87% of its revenue in the 6 months to 30 Jun 2024.

• G42 also owns less than 5% of Cerebras CLass A shares, with option to purchase more depending on how much Cerebras product it buys.

That is the kind of concentration that should make investors wary of rushing after Cerebras as the next big thing in AI chips.

Customer base challenge.

If their technology is good, where are the name-brand US hyperscaler customers?

After all, Cerebras has been around since 2016.

It has yet to generate large revenue from major US technology companies like Microsoft, Amazon, Alphabet Google and Meta Platform.

When asked on the lack of customer diversity, a Cerebras spokesperson said the company is in discussions with many of the large hyperscalers, but has not announced any deals yet.

Realistically, It will be difficult for Cerebras because it lacks:

• The scale. and

• The experience in providing an optimized, bug-fixed & tested “full stack” solution.

Unlike Nvidia’s broad offering, where the entire data center has become the computer in the modern age of AI.

What Nvidia does for a living is not build the chip, rather it builds an entire supercomputer, said CEO Jensen Huang, at the company’s GTC developers’ conference earlier this year. This means:

• From the chip to the system to the interconnects, the NVLinks (processor connections), the networking, but very importantly the software.

My viewpoints: (mine only)

For Tiger members who have read my original post, you would know that Cerebras System is an innovator.

It’s AI-chip architecture is 100% depart from the historic that Nvidia has “statically” conformed to:

• It does not have and does not need “connectors” (incur delays in relays) to unify processors together (like Nvidia).

• This has enabled Cerebras’s AI chip to process faster than Nvidia’s AI chip.

In terms of customer base, it is rare that established IT giants will be willing to work with new entrants immediately due to many considerations.

• Financial Risk: New entrants might have limited financial resources, raising concerns about their ability to fulfill contracts and handle potential issues.

• Technical Risk: Unproven technology or lack of experience can lead to technical challenges and delays.

• Reputation Risk: Partnering with a new entrant that fails could damage the established company's reputation.

Of course, there are exception - for instance $ARM Holdings Ltd(ARM)$ was already working with established IT companies like Apple, Samsung, Qualcomm etc.. even before IPO.

As for cloud service giants to the likes of Amazon (AMZN), Microsoft (MSFT) and Alphabet / Google, each have their own AI chip technologies.

Quite unlikely that Cerebras would be able to regard them as full board customers. However, there is no stopping these IT giants from acquiring Cerebras AI-chips to co-exists with their own AI-chips.

To be honest, Cerebras IPO does not look like a significant threat to AI chip champion Nvidia, or peers like as AMD.

In fact, it is tiny when compared against Nvidia's $61 billion (2023 revenue).

Having said that, where Cerebras hopes to stand out is to be able to build a bigger, more powerful chip.

Its 3rd-generation Cerebras Wafer-Scale Engine (WSE-3) is the largest chip ever sold.

• The sheer size of the wafer-scale chip has more cores & memory than Nvidia’s very expensive, best seller - the H100, that US govt has banned for sale to China.

• Allowing much more processing carried out on-silicon.

• Minimizing the time-consuming, power-hungry movement of data.

• In the process, allows work to be solved/completed in even less time, using even less power.

• And there is a lot to be said about huge energy consumption by the “hungry” AI technology.

In addition to selling chips, Cerebras is offering cloud-based services that rely on its own computing clusters.

This will definitely benefit small and medium size enterprises (SMEs) who needs to be on the AI bandwagon but does not have a matching budget for standalone installation and maintenance.

Cerebras’s offering could be the bridging gap for SMEs to compete with the bigger companies, with deeper pockets and in the process, level the playing field indirectly.

Artificial Intelligence Pie.

Analysts have estimated that the money spent on AI chips will grow from $131 billion (2024) to $452 billion by 2027.

Even if Cerebras only gets only 1% of market share, it will be more than they can handle upon IPO.

Putting things into context. Cerebras has some fans. OpenAI CEO Sam Altman is one of the top 5 investors in the company:

1. Andrew Feldman - Co-founder and CEO of Cerebras Systems.

2. Gary Lauterbach - Co-founder and CTO of Cerebras Systems.

3. Sam Altman - CEO of OpenAI.

4. Andy Bechtolsheim - Co-founder of Sun Microsystems.

5. Jean-Philippe Fricker - Co-founder of Cerebras Systems.

When you’re good, you’re good?

Lastly, the post also took a swipe on the 2 “lead” banks that Cerebras has hired to underwrite its IPO.

They are: $Citigroup(C)$ and $Barclays PLC(BCS)$, not the run of the mill bigwigs like Goldman Sachs or Morgan Stanley.

To this end, I think Cerebras Systems’s management team is prudent when selecting its lead bankers:

• Its IPO size is not going to be like Saudi Arabia’s Aramco’s $25.6 billion.

• So why pay “premium” fees for AAA-grade investment bankers like Goldman Sachs or Morgan Stanley?

• Both Citibanks and UK’s Barclays Plc are not strangers in the field of IPO management.

• They strong in their investment banking area of works too, with each of the bank representing North America and Europe continents.

Assuming above post by Forbes on 03 Oct 2024 is true, then there should be room for another AI chip maker to:

• Help ease demand.

• Bring about greater adoption of AI.

• Creates faster processing speed environments.

• And at a more “pocket” friendly pricing, no ?

After all that has been said and done, still interested to take a stab at Cerebras Systems ?

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