Key Points
This has been a big year for initial public offerings so far, with operations oversubscribed and companies raising billions of dollars. Investors may have appreciated the fresh opportunity to broaden their portfolios into new-to-market players — particularly in the tech space.
Artificial intelligence (AI) stocks have fueled stock market gains in recent years. And though investors continue to buy shares of market giants like Nvidia and Amazon, these IPOs offered them the chance to rotate into new names that could potentially offer growth in the quarters and years to come.
Wall Street expects one of the market’s recent IPO stocks to jump more than 40% over the next 12 months. Let’s check out this company and examine whether it’s a buy.
The year’s biggest IPOs
This particular company, as of May, completed the year’s biggest IPO, raising more than $5.5 billion, and represents a new challenger to AI chip leader Nvidia. (Space Exploration Technologies then launched the world’s biggest IPO ever in June.)
The player I’m talking about is Cerebras Systems (NASDAQ: CBRS), designer of a giant chip that it says may surpass the speed of today’s top graphics processing units (GPUs). Analysts are clearly optimistic about Cerebras’ technology as the average share price forecast calls for a 47% gain from today’s level — as of July 15 trading — over the coming 12 months.
Cerebras’ secret to speed is the size of its chip, allowing the company to pack on massive amounts of compute and memory bandwidth. The chip is 58 times the size of an Nvidia B200 GPU, and has more than 2,000 times the memory bandwidth of an Nvidia package, meaning two GPUs working together. Cerebras’ chip, called a wafer-scale engine (WSE), has completed inference up to 15 times faster than today’s leading GPUs, the company says.
Today, customers may access Cerebras through its own cloud or partner clouds such as Amazon Web Services. And revenue growth shows that customers are turning to Cerebras — revenue climbed 92% in the latest quarter to more than $193 million.
Though Nvidia dominates the AI chip market, current demand for compute is so high that there’s room for many players to generate growth. And if AI is indeed applied more and more frequently to real-world problems, this broad growth opportunity should continue. AI requires significant compute throughout its phases of development and use, from training through the actual use of AI agents to consider problems and apply solutions.
A key weakness
All of that is great news for a newcomer like Cerebras. It’s important to note, however, that the company’s key weakness so far is its reliance on a small group of customers.
“A substantial portion of our revenue has been, and is expected to continue to be, driven by a limited number of customers,” the company wrote in its prospectus. This represents risk as any drop in demand from one could significantly hurt Cerebras’ prospects.
Considering the full picture, is Cerebras, a stock Wall Street expects will gain in the double-digits, a buy right now? This depends on your relationship with risk.
If you’re a cautious investor, Cerebras isn’t the right choice for you today. It involves the risk I just mentioned, and on top of this, the company isn’t yet profitable. This is normal at the current stage of growth and development, but it is still an element that makes the stock one that cautious investors should avoid. A cautious investor interested in an AI chip stock may favor a well-established giant such as Nvidia or Advanced Micro Devices, companies that have delivered earnings growth over time.
However, aggressive investors who are looking to diversify into new AI stocks may consider picking up a few shares of Cerebras. This company is in the early days of its growth story — Wall Street expects gains to happen over the coming year, but even better, the stock may have what it takes to offer growth over the long term.
Should you buy stock in Cerebras Systems right now?
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool has a disclosure policy.
