Norman Simpson
Cerebras Systems stock dropped roughly 14% in premarket trading Wednesday after the AI chip designer issued a full year gross margin forecast well below its first quarter result, raising fresh questions about profitability for a company that only recently completed a blockbuster IPO.
At a Glance
- Cerebras shares fell about 14% before the open on June 25, putting them on pace for their lowest close since listing.
- The selloff threatened to erase more than $6 billion in market value in a single session.
- Full year 2026 adjusted gross margin guidance came in at 38% to 41%, down from 47% reported in Q1.
- Morgan Stanley raised its price target to $273 from $250 despite the margin miss.
- A $20 billion multi year deal with OpenAI and an incoming Amazon Web Services partnership anchor the long term bull case.
What Spooked Investors
The premarket plunge followed Cerebras' first earnings report as a public company. The California based chip designer guided for 2026 adjusted gross margins of 38% to 41%, a notable step down from the 47% it delivered in the first quarter. Even though that range cleared the average analyst estimate of roughly 29.58%, the sequential compression was enough to rattle shareholders who had bid the stock up after a high profile debut.
Analysts point to two structural pressures. Cerebras builds unusually large chips, which raises manufacturing costs. The company is also renting back its own systems from an existing customer to satisfy near term demand while it expands data center capacity, a workaround that eats into margins.
Compared with peers, the numbers look thin. Nvidia operates in the mid 70% gross margin range and Advanced Micro Devices sits in the mid 50%. Cerebras is nowhere near either figure, which matters to investors pricing in future earnings power. The stock is now down more than 27% from its market debut, reflecting a broader cooling of enthusiasm toward AI infrastructure plays amid concerns about the sheer capital required to build out the sector.
The OpenAI and AWS Deals
CEO Andrew Feldman used the post earnings call to spotlight two partnerships that supporters say change the picture entirely. Cerebras has signed a $20 billion multi year contract with OpenAI, and Feldman confirmed that OpenAI's GPT 5.4 model is already running on Cerebras chips. Under the agreement, the ChatGPT maker plans to deploy 750 megawatts worth of Cerebras semiconductors.
Feldman also disclosed that Amazon Web Services will begin using the company's chips in its data centers, with revenue from that relationship expected to flow within the next year. TD Cowen flagged both the Amazon and OpenAI arrangements as central to Cerebras' long term growth trajectory.
Wall Street's Split Reaction
Morgan Stanley moved against the bearish tide, lifting its price target on Cerebras to $273 from $250. That signals the firm still sees meaningful upside from current levels even after accounting for the margin guidance. TD Cowen's positive read on the customer pipeline similarly suggests institutional analysts are treating the margin pressure as a transitional issue rather than a fundamental flaw.
Cerebras vs. Key Rivals: Gross Margin Snapshot
| Company | Approximate Gross Margin Range |
|---|---|
| Nvidia | Mid 70% |
| Advanced Micro Devices | Mid 50% |
| Cerebras Systems (2026 guide) | 38% to 41% |
Frequently Asked Questions
Why are Cerebras gross margins lower than Nvidia's?
Cerebras designs chips that are physically much larger than conventional processors, which increases fabrication costs per unit. The company is also currently renting back systems from a client to cover near term demand, a temporary measure that compresses margins while it scales its own data center footprint.
What is the OpenAI deal worth?
Cerebras has a $20 billion multi year agreement with OpenAI. The deal includes deployment of 750 megawatts of Cerebras semiconductors, and GPT 5.4 is already reported to be running on the company's chips.
Has any Wall Street firm raised its target after the earnings report?
Yes. Morgan Stanley increased its price target to $273 from $250 following the results. TD Cowen also expressed confidence in the long term outlook, citing the OpenAI and Amazon Web Services deals.
How far has Cerebras stock fallen since its IPO?
As of the premarket move on June 25, Cerebras shares were down more than 27% from the price at which they debuted on the public markets.
What Comes Next for Cerebras
The margin story will take time to resolve. Expanding data center capacity is not a quick fix, and the company's ability to convert its OpenAI and AWS relationships into high margin revenue is the variable investors will watch most closely over the coming quarters. The Wall Street debate is essentially a question of timing: whether the structural pressures are a temporary growing pain or something that sticks around long enough to matter.
