Chipmaker Nvidia has made a lot of investors wealthier over the years. And investing in artificial intelligence (AI) as a whole has generally been a great idea. Many AI stocks have reached new highs in recent years due to the excitement and encouraging outlook for next-gen technologies.
If you like Nvidia’s stock but want some diversification, or perhaps simply want to invest in a company in its much earlier growth stages, than there’s a new company you might want to consider if and when it goes public, and that’s Cerebras.
Could Cerebras be the next big AI stock?
Cerebras is a tech company that could potentially give Nvidia some significant competition in the future. The company claims that it has “the world’s largest, most powerful commercially available chip,” the Wafer-Scale Engine. It says that the third generation, the WSE-3, “is 57 times larger than the leading commercially available GPU and has 52 times more compute cores,” making it ideal for AI training.
The company, like many others involved with AI, has been experiencing significant growth. In just the first half of 2024, Cerebras has generated $136.4 million in revenue. That’s already more than the $78.7 million it posted for all of 2023, which was more than three times the $24.6 million it posted the year before that. The company was only established in 2016 and began generating revenue in 2019.
It comes with some notable risks
Cerebras has been generating some explosive growth, and its potential sounds terrific, especially if its chip proves to be the real deal.
One of the challenges is that the business isn’t profitable yet. During the first two quarters of the year, it has incurred a net operating loss of $41.8 million, although that is down from a loss of more than $81 million a year ago. While the company is growing quickly, it will also incur more expenses as it scales up its operations and expands into more markets.
Another risk to consider is that a significant portion of the company’s revenue comes from just one customer, Group 42 Holding, an AI company based in the United Arab Emirates. It accounted for 83% of Cerebras’ revenue in 2023, and that percentage has risen to 87% this year.
Investors might normally expect that percentage to shrink over time as a company expands its operations. But Cerebras is still in its early growth stages, and that’s likely a key reason that hasn’t happened yet. The danger is that with so much riding on one customer, Cerebras’ sales and profit numbers could change drastically depending on demand from Group 42.
Should you invest in Cerebras when it hits the market?
Cerebras could go public later this year, and it might be an exciting opportunity to buy in early. In 2021, the company was valued at approximately $4 billion, and although it will likely be worth far more now given all of its growth and the excitement surrounding AI, it’s fair to say it also likely won’t be anywhere near Nvidia’s valuation, either.
Investing in initial public offerings can be risky because it often involves businesses that are in their early growth stages — as is the case with Cerebras. But if the company and its chips prove to be the real deal, the upside could be significant.
The stock might not be suitable for all investors, but if you have a high risk tolerance and want what could be the next big AI stock, Cerebras might be worth buying out of the gate.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
