Cerebras stock sinks 18% after missing estimates despite cloud revenue surge

Cerebras Systems shocked investors with over an 18% premarket decline after releasing its second earnings report as a public company, revealing a business in transition that challenges the original bull narrative. The Sunnyvale, California-based company posted mixed results: cloud revenue roughly quadrupled to $126 million versus the year-ago quarter, yet hardware sales including its flagship AI chips declined to $54.1 million from $70.3 million a year ago. Adjusted gross margin contracted to 40.6% from 46.5% in the previous quarter, and revenue missed analysts' estimates despite guidance for higher annual outlooks.

The earnings disappointment cuts deeper when viewed against Cerebras's positioning since going public. The company had leveraged its AI chips business to position itself as a potential challenger to Nvidia, driving a 41% surge in share price from its $185 IPO price. That narrative—that Cerebras could meaningfully compete with Nvidia in the red-hot AI chip market—had captivated investors during a period of unprecedented spending on AI infrastructure. Big Tech companies are projected to spend more than $740 billion on infrastructure this year, creating significant tailwinds for any credible chip alternative.

Instead, the company is increasingly deriving revenue from cloud computing rather than from its own chip sales. While the fourfold expansion in cloud revenue is impressive on its face, the simultaneous decline in hardware sales suggests Cerebras may be shifting away from the very business that justified its valuation premium. Analysts at Morgan Stanley highlighted the core tension: execution remains the key debate given the scale and speed of the capacity build required to support the ramp. The implication is clear—the company's ability to scale and maintain margins under pressure will determine whether it can fulfill its growth targets.

The market's repricing was swift. Citi and Mizuho cut their price targets slightly, and the median price target compiled by LSEG based on analyst estimates implies only 15% upside from the previous close. For context, Cisco Systems—a beneficiary of the AI data center buildout as a networking equipment maker—also disappointed investors with an outlook that fell short of lofty expectations, with its stock declining over 6% despite a more than 60% gain year-to-date. Cisco expects $7.5 billion in revenue from AI infrastructure orders from hyperscalers in fiscal 2027, a figure that underscored the broader challenge facing infrastructure vendors: the sector is exposed to whether Big Tech sustains its aggressive spending trajectory.