In after-hours trading on Thursday, shares of Cerebras Systems (NASDAQ:CBRS) dropped approximately 12%, reversing a similar gain from the previous session. The market's reaction came despite the company reporting a 103% surge in core revenue and an improved full-year forecast. The sell-off underscores investor concerns about the underlying profitability of the AI chipmaker's rapidly expanding cloud business.
Cloud Revenue Soars, But GAAP Profit Falls
For the second quarter, Cerebras reported GAAP revenue of $180.1 million, a 74% increase year-over-year. Cloud and services revenue more than quadrupled, jumping 281% to $126.0 million, while hardware revenue declined 23% to $54.1 million. However, GAAP gross profit contracted by 20% to $25.6 million, with gross margin compressing to 14% from roughly 31% a year earlier.
The disparity between the headline growth and the profit decline lies in the company's accounting treatment and its heavy reliance on rented computing capacity. CFO Bob Komin noted that using leased capacity trimmed adjusted gross margin by approximately five percentage points, but he expects a shift toward owned data centers to alleviate that drag over time.
Core vs. GAAP: A Million Gap
Cerebras's core non-GAAP metrics paint a more optimistic picture. Core revenue reached $209.9 million, and core gross margin hit 41%, up 9.4 percentage points. The $29.8 million difference between core and GAAP revenue stems from $14.5 million in pass-through sales excluded from core and $44.3 million in customer-warrant amortization included in core. This gap represents 16.5% of GAAP revenue, a key focus for analysts assessing the quality of earnings.
2026 Outlook Raised, But Execution Risks Loom
Management lifted its 2026 core revenue guidance to $880 million–$890 million from $855 million–$865 million, and raised the core gross margin range to 41%–43%. Operating margin guidance also improved to -19% to -17% from -32% to -28%. The company holds a robust balance sheet with $8.6 billion in cash and short-term investments, and $25.4 billion in remaining performance obligations.
CEO Andrew Feldman emphasized strong demand for fast inference, noting that Cerebras has over 600 megawatts of data-center capacity either operational or secured through 2027. The company's wafer-scale architecture avoids high-bandwidth memory and advanced packaging, both industry bottlenecks, positioning it as a formidable rival to Nvidia (NASDAQ:NVDA) in inference computing.
Wall Street Remains Cautiously Optimistic
Despite the earnings dip, sell-side sentiment stays bullish. Morgan Stanley's analysts commented, "Execution remains the key debate given the scale and speed of the capacity build required." Price targets range from $273 to $340, with all ten covering analysts maintaining Buy ratings. However, these recommendations predate the latest report and could be revised.
Investors will closely monitor capacity utilization and any target adjustments in the coming weeks. The stock's 11.6% rise on Wednesday was fully erased by Thursday's decline, highlighting the volatility surrounding the company's growth story.
Key Risks
- Dependence on a few major customers
- Rapid capacity expansion may face setbacks
- Low utilization rates or intensified competition could stall the path to GAAP profitability
