Cerebras IPO as chipmaker tries to take on Nvidia is ‘too hairy’

AI chipmaker Cerebras has become the first major venture-backed technology company to go public in the U.S. since April, seeking to capitalize on insatiable investor demand. Nvidiacurrently worth $3.3 trillion.

While the company’s position in artificial intelligence infrastructure is a major tailwind, Cerebras has its challenges, particularly its heavy reliance on a single customer in the Middle East, which could hinder the company’s ability to ride the Nvidia wave. It may be too heavy to overcome in an attempt. Cerebras, estimated to be valued at $4 billion in 2021, is reportedly aiming to roughly double that in its IPO.

“There’s too much substance to this deal,” said David Golden, a startup investor and former head of technology investment banking at Revolution Ventures. JP Morgan Chase from 2000 to 2006, he said in an interview this week. “This could never have gotten past our underwriting committee.”

Cerebras was launched in 2016 and announced its first processor three years later. The Sunnyvale, Calif.-based company claims its current chips are faster and more efficient than Nvidia’s graphics processing units (GPUs) at training large language models.

In 2023, Cerebras’ revenue more than tripled to $78.7 million. Revenues for the first half of 2024 increased to $136.4 million, with Cerebras signing an agreement to sell $1.43 billion worth of systems and services in the prospectus, with upfront payments expected by March 2025. This suggests that growth is poised to accelerate significantly.

But the most obvious red flag in Cerebras’ application relates to customer concentration. A company based in Abu Dhabi, United Arab Emirates, accounted for 87% of revenue in the first half of this year. Our customer, G42, microsoftand is fully responsible for the $1.43 billion purchase commitment.

Cerebras does not list other customers in its prospectus, but its website lists the names of several customers. AstraZeneca, glaxosmithkline and Mayo Clinic. In its filing, Cerebras said that as it expands its customer base, it aims to expand its customer base to “adjacent sectors such as healthcare, pharmaceuticals, and biotechnology” and “where our AI acceleration capabilities can address critical computational bottlenecks.” He said he plans to aggressively pursue opportunities in other areas.

In addition to relying on G42 for business, Cerebra counts the company as an investor and is seeking permission from the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) to give the Middle Eastern company greater status. . G42 has agreed to buy $335 million in stock by April, making it the largest holder at current levels. G42 could earn an additional $500 million in Cerebra stock if it commits to spending $5 billion on its computing cluster.

CFIUS has the authority to review foreign investments in U.S. companies for potential national security concerns. Cerebras said in its filing that it does not believe CFIUS has “jurisdiction over the G42’s purchase of our non-voting securities,” but added: “There can be no assurance that CFIUS will approve.” Reuters reported on Tuesday that Cerebras is likely to postpone its initial public offering and cancel a roadshow scheduled to begin next week, citing a national security review. This was reported by Reuters, citing sources.

US lawmakers have expressed concerns about the G42’s historic relationship with China through past investments and client relationships. The G-42 was formed in February after Rep. Mike Gallagher (R-Wis.), chairman of the Chinese Communist Party Select Committee, wrote a letter to Secretary of Commerce Gina Raimondo expressing concerns about what the G-42 was claiming. announced that it had sold its shares in a Chinese company. “Extensive business relationships with Chinese military companies, state-owned institutions, and Chinese intelligence agencies.”

G42 did not respond to requests for comment.

Even if approved by CFIUS, Cerebra will have to overcome a long period of valuation restraint for small technology companies and a lack of IPOs since the end of 2021 if it wants to sell the deal to investors. There are many.

Adding to Cerebras’ list of potential obstacles is the fact that none of the major tech investment banks are involved.

goldman sachs and morgan stanley It has long dominated IPO underwriting in the technology industry. JP Morgan Chase I’m also fighting to be in the mix. Both men were absent from all negotiations with Cerebra, and the people familiar with the process spoke on condition of anonymity because the negotiations are private, citing client concentration and the risks associated with overseas investments. said.

This transaction is led by citygroup and barclaysboth large global banks, but not the banks that take leadership positions in top technology IPOs.

Representatives for Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley declined to comment. Barclays did not respond to a request for comment.

Cerebras’ auditor is BDO, which is not one of the so-called Big Four accounting firms. In three other venture-backed IPOs this year, the treasurer was KPMG (reddit and rubric) and PwC (Astera Research Institute), two of the Big Four, along with Deloitte and Ernst & Young.

BDO declined to comment.

There’s also Andrew Feldman, CEO of Cerebras. He pleaded guilty in 2007 to one count of evading accounting controls several years earlier while serving as vice president of marketing for a publicly traded company called Riverstone Networks.

“What else can we add to make this really difficult?” said Revolution’s Golden.

A spokesperson for Cerebras declined to comment on the matter.

Big Wall Street banks are looking for alternatives to the burgeoning AI infrastructure market. Goldman Sachs, JPMorgan and Morgan Stanley were among the banks that participated in the issuance of a $4 billion revolving credit facility to OpenAI last week. And on Friday, Nvidia GPU provider CoreWeave announced the closing of a $650 million line of credit led by three top tech banks.

Given the excitement around AI chips and the lack of investment opportunities in the market, Cerebras still has a path to an IPO.

Nvidia is also trading at near-record levels. Mizuho Securities estimates that NVIDIA controls 95% of the market for AI training and inference chips used in models such as OpenAI’s GPT-4. Venture capitalist Peter Thiel said at the All-In Summit last month that Nvidia is the only company making money in this space.

“NVIDIA makes over 100% of its profits,” Thiel said in an on-stage interview at an event in Los Angeles. “Everyone else is collectively losing money.”

Cerebras remains unprofitable, reporting a second-quarter net loss of approximately $51 million. However, excluding stock compensation, the company is close to breaking even on an operating basis.

Jim Fitch, a private investor and retired Florida home builder, is among those excited about the opportunity to invest early. Fitch said he sold his Nvidia shares several years ago, telling CNBC that the benefits outweighed the risks. He noted that Feldman, co-founder and CEO of Cerebras, sold his previous company, SeaMicro, to an Nvidia rival. advanced micro device More than 10 years ago it was more than $300 million.

Fitch is attracted to Cerebras’ technology, particularly the promise of its 4 trillion-transistor WSE-3 chip, which the company calls “the fastest AI processor on the planet.”

“This will do the work of 100 Nvidias,” Fitch said.

WATCH: Cerebras CEO talks about competition with Nvidia