Cerebra's IPO has “too many hairs” because the chipmaker tries to tackle Nvidia

AI chip maker Cerebras is searching for to turn into the primary major enterprise capital-backed technology company to go public within the US since April, capitalizing on insatiable investor demand Nvidiacurrently value $3.3 trillion.

While its position in artificial intelligence infrastructure is a serious tailwind, Cerebras faces challenges – particularly its heavy reliance on a single Middle Eastern customer – as the corporate attempts to ride the Nvidia wave could prove difficult to beat. Appreciated by $4 billion in 2021Cerebras is allegedly The company desires to roughly double this amount when it goes public.

“There are too many hairs on this deal” David Goldena startup investor at Revolution Ventures who led tech investment banking at JPMorgan Chase from 2000 to 2006, said in an interview this week. “This would never have gotten through our underwriting committee.”

Cerebras launched in 2016 and introduced its first processor three years later. The Sunnyvale, California-headquartered company claims its current chip is quicker and more efficient than Nvidia's graphics processing unit (GPU) for training large language models.

In 2023, Cerebras' revenue greater than tripled to $78.7 million. In the primary half of 2024, revenue climbed to $136.4 million, and growth appears to be increasing significantly as Cerebras says in its prospectus that it has agreements to sell systems and services value $1.43 billion. dollar, with an advance payment expected before March 2025.

The most glaring red flag in Cerebras' file, nonetheless, concerns customer concentration. An organization based in Abu Dhabi, United Arab Emirates, accounted for 87% of sales in the primary half of the yr. The customer, G42, is supported by Microsoftand it’s fully liable for the $1.43 billion purchase obligation.

Cerebras doesn’t list some other customers in its prospectus, but lists a couple of, including, on its website AstraZeneca, GlaxoSmithKline and the Mayo Clinic. Cerebras says within the filing that because it expands its customer base, the corporate plans to “aggressively pursue opportunities in relevant sectors such as healthcare, pharmaceuticals, biotechnology” and other areas “where our AI acceleration capabilities can address critical computing bottlenecks.”

In addition to its reliance on G42 for its operations, Cerebras counts the corporate as an investor and is searching for approval from the Treasury Department's Committee on Foreign Investment within the United States (CFIUS) to present the Middle Eastern company a bigger position. G42 has agreed to accumulate a $335 million stake by April, which might make it the biggest owner at current levels. G42 can acquire an extra $500 million in Cerebras shares if it commits to spending $5 billion on the corporate's computer clusters.

CFIUS has the authority to review foreign investments in U.S. firms for potential national security concerns. Cerebras said in its filing that CFIUS doesn’t have “responsibility for G42's purchase of our non-voting securities,” but added that “there is no guarantee that CFIUS will approve it.” Reuters reported on Tuesday that Cerebras would likely delay its IPO and cancel its roadshow scheduled to start next week attributable to a national security review. Reuters quoted people accustomed to the matter.

U.S. lawmakers have expressed concern concerning the G42's historical ties to China, each through past investments and customer relationships. G42 said in February that this was the case sold his shares in Chinese firms after Rep. Mike Gallagher, R-Wis., chairman of the Chinese Communist Party special committee, wrote a Worrying letter to Commerce Secretary Gina Raimondo about what he called the G42's “extensive business relationships with Chinese military contractors, state-owned enterprises and the PRC's intelligence services.”

G42 didn’t reply to a request for comment.

Even if it receives CFIUS approval, Cerebras still has loads to beat in attempting to sell this deal to investors after an extended period of suppressed valuations for smaller tech firms and an absence of IPOs since late 2021.

Adding to Cerebras' list of potential obstacles is the undeniable fact that none of the main technology investment banks are involved.

Goldman Sachs And Morgan Stanley have long dominated technology IPO underwriting JPMorgan Chase I also struggled to participate. They are all absent from the Cerebras deal, and sources with knowledge of the method, who asked to not be named since the discussions are private, said they stayed away partially due to the risks related to customer concentration and foreign investment.

The deal is led by Citigroup And Barclayseach large global banks, but not those that take a number one position in IPOs within the cutting-edge technology sector.

Representatives for Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley declined to comment. Barclays didn’t reply to a request for comment.

Cerebras' auditor is BDO, which shouldn’t be one among the so-called “Big Four” accounting firms. Accountants KPMG (Reddit And category) and PwC (Astera Labs), which belong to the Big Four alongside Deloitte and Ernst & Young.

BDO declined to comment.

There's also Cerebras CEO Andrew Feldman, who pleaded guilty in 2007 to 1 count of circumventing accounting controls while several years earlier he was vice chairman of promoting at a publicly traded company called Riverstone Networks.

“What else could have been added to this to make it really difficult?” Revolution's Golden said.

A Cerebras spokesman declined to comment for this story.

For their part, the massive Wall Street banks are finding other ways to play within the burgeoning AI infrastructure market. Last week, Goldman Sachs, JPMorgan and Morgan Stanley were amongst various banks that participated in issuing a $4 billion revolving credit facility to OpenAI. And on Friday, Nvidia GPU vendor CoreWeave announced the closing of a $650 million credit facility led by the three largest technology banks.

For Cerebras, there remains to be a path to an IPO given the large enthusiasm for AI chips and the shortage of investable opportunities available in the market.

In addition, Nvidia is trading near a record high. Mizuho Securities estimates that Nvidia controls 95% of the marketplace for AI training and inference chips used for models equivalent to OpenAI's GPT-4. Venture capitalist Peter Thiel said on the All-In Summit Last month, Nvidia announced that it was the one company within the space creating wealth.

“Nvidia makes over 100% of the profits,” Thiel said in an onstage interview on the event in Los Angeles. “Everyone else loses money together.”

Cerebras remains to be within the red, reporting a net lack of nearly $51 million within the second quarter. However, without taking stock-based compensation into consideration, the corporate is near breaking even on an operating basis.

Retail investor Jim Fitch, a retired home builder in Florida, welcomes the chance to get in early. Fitch, who said he sold his Nvidia shares years ago, told CNBC that the advantages outweigh the risks. He noted that Feldman, co-founder and CEO of Cerebras, sold his previous company SeaMicro to rival Nvidia Advanced micro devices for greater than $300 million over a decade ago.

Fitch is confident in Cerebras' promising technology, particularly its WSE-3 chip, which the corporate calls the “world's fastest AI processor” and features 4 trillion transistors.

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

REGARD: Cerebras CEO on competing with Nvidia