Nvidia stock has risen incredibly over the past five years. It is natural that competitors will appear.
Artificial intelligence chip maker Nvidia (NVDA -0.01%) has amassed a market capitalization of nearly $3.2 trillion, making it one of the world’s largest chip manufacturers. It currently accounts for more than 6% of the broader benchmark S&P 500 index. Over the past five years, Nvidia’s annual revenue has increased by 458% and its stock price has increased by an impressive 2,009%. Given the potential for AI to disrupt life as we know it, it’s understandable that investors are very excited about this stock.
But this lure of profit naturally leads to competition. Now, one of Nvidia’s competitors is planning an initial public offering (IPO), claiming it will produce chips that far outperform Nvidia at a fraction of the price. Let’s take a look.
20x better than Nvidia?
Last week, AI chip maker Cerebras filed a registration statement with the Securities and Exchange Commission (SEC) to go public. In a 2021 press release, Cerebras announced that it had raised a $250 million Series F funding round, bringing the company’s valuation to $4 billion. The company is aiming for a $1 billion IPO at a valuation of $7 billion to $8 billion.
In its registration statement, Cerebras lists Nvidia as competitors, as well as other major AI companies such as Advanced Micro Devices, Intel, Microsoft, and Alphabet. Here’s a description of what Cerebras does:
Design processors for AI training and inference. We build AI systems that power processors, cool them, and feed them data. Using familiar ML frameworks like PyTorch, we develop software that links these systems to build industry-leading supercomputers that are easy to use for even the most complex AI tasks. Our customers use our supercomputers to train industry-leading models. We use these supercomputers to perform inference at speeds not possible with alternative commercial technologies.
Mr. Cerebras’ point is that bigger is better. That’s because the company designed the largest chip ever sold, the same size as a full silicon wafer. The company believes the size advantage reduces data movement time. Additionally, Cerebras has a flexible business model that allows customers to purchase Cerebras products and install them in their own facilities or through pay-as-you-go subscriptions through the company’s cloud infrastructure.
Cerebras clearly wants investors to compare, or at least associate, the company with Nvidia. Nvidia is mentioned 12 times in the registration statement. Cerebras also provides a comparison between its Wafer-Scale Engine-3 chip and Nvidia’s H100 graphics processing unit (GPU), considered the most powerful GPU on the market.
Image source: Cerebras registration statement.
Cerebras CEO Andrew Feldman has publicly stated that his company’s inference service is 20 times faster than Nvidia’s at a fraction of the price. In 2023, Cerebras generated approximately $78.7 million in revenue, an increase of 220% year over year. By the first half of 2024, Cerebras’ revenue had increased to $136.4 million. The company is not yet profitable and has reported losses of approximately $67 million through the first half of 2024. Those numbers also pale in comparison to Nvidia, which recently reported second-quarter sales of $30 billion and profits of about $16.6 billion. .
Will Cerebras become a hot topic?
With all the press coverage and claims of being 20x faster than Nvidia, I think it’s safe to say that Cerebras has already gotten attention and will continue to get attention.
Depending on the excitement building up among investment bankers during the company’s roadshow and market conditions, it wouldn’t be surprising if Cerebras goes public at a higher-than-expected valuation. AI is a hot topic, the IPO market has been flat in recent years, and there may be pent-up demand on Wall Street.
Will Cerebras overtake Nvidia? Only time will tell. While the company’s product offering is impressive, it still has a long way to go to bring its financials in line with Nvidia. Additionally, there may be some advantages to Nvidia having a smaller chip, and while it remains to be seen whether Cerebras will be able to compete with Nvidia’s software language CUDA, the company has said that its software program It eliminates the need for low-level programming in CUDA.” ”
Everything sounds great, but there may still be some “show me” elements in this story. After all, most of Cerebras’ revenue comes from a single customer. Nvidia also has a leading market share in the AI chip space and has relationships with many large customers. Who’s to say Nvidia couldn’t take advantage of its size, and perhaps resources, to develop similar large wafer chips? There’s still a lot to unfold, but this could be one of the most interesting developments for market watchers to watch.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Bram Berkowitz has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: A January 2026 $395 long call on Microsoft, a January 2026 $405 short call on Microsoft, and a November 2024 $24 short call on Intel. The Motley Fool has a disclosure policy.
