AI chipmaker Cerebras is trying to be the first major venture-backed tech company to go public in the U.S. since April and to capitalize on investors’ insatiable demand for Nvidia, now valued at $3.3 trillion.

While its position in artificial intelligence infrastructure represents a major tail wind, Cerebras has challenges — most notably a hefty reliance on a single Middle Eastern customer — that may prove too weighty to overcome in the company’s attempt to ride the Nvidia wave. Valued at $4 billion in 2021, Cerebras is reportedly seeking to roughly double that in its IPO.

“There’s too much hair on this deal,” David Golden, a 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 three years later unveiled its first processor. The company, headquartered in Sunnyvale, California, claims its current chip is faster and more efficient than Nvidia’s graphics processing unit, or GPU, for training large language models.

In 2023, Cerebras’ sales more than tripled to $78.7 million. In the first half of 2024, revenue climbed to $136.4 million, and growth appears poised to ramp up significantly, as Cerebras says in its prospectus that it’s signed agreements to sell $1.43 billion worth of systems and services, with prepayment expected before March 2025.

But the most glaring red flag in Cerebras’ filing relates to customer concentration. One company based in Abu Dhabi, United Arab Emirates, accounted for 87% of revenue in the first half of the year. The customer, G42, is backed by Microsoft, and it’s entirely responsible for the $1.43 billion purchase commitment.

Cerebras doesn’t list any other clients in its prospectus, but it does name a few on its website, including AstraZeneca, GlaxoSmithKline and the Mayo Clinic. Cerebras says in the filing that, in expanding its customer base, the company plans to “aggressively pursue opportunities in relevant sectors such as healthcare, pharmaceutical, biotechnology” and other areas “where our AI acceleration capabilities can address critical computational bottlenecks.”

In addition to its reliance on G42 for business, Cerebras counts the company as an investor, and it’s seeking clearance from the Treasury Department’s Committee on Foreign Investment in the U.S., or CFIUS, to give the Middle Eastern firm a bigger position. G42 has agreed to purchase a $335 million stake by April that, at current levels, would make it the largest owner. G42 can pick up $500 million more in Cerebras shares if it commits to spend $5 billion on the company’s computing clusters.

CFIUS has the authority to review foreign investments in U.S. companies for potential national security concerns. Cerebras said in its filing that it doesn’t believe CFIUS has “jurisdiction over G42’s purchase of our non-voting securities” but added that “there is no guarantee that CFIUS will approve” it. Reuters on Tuesday reported that Cerebras was likely to delay its initial public offering and call off its roadshow, scheduled to start next week, due to a national security review. Reuters cited people familiar with the matter.

U.S. lawmakers have expressed unease about G42’s historic ties to China, through both past investments and customer relationships. G42 said in February that it had sold its stakes in Chinese companies after Rep. Mike Gallagher, R-Wis., chairman of the Select Committee on the Chinese Communist Party, wrote a letter of concern to Commerce Secretary Gina Raimondo about what he called G42’s “extensive business relationships with Chinese military companies, state-owned entities and the PRC intelligence services.”

G42 didn’t respond to a request for comment.

Even if it achieves CFIUS approval, Cerebras has a lot to overcome in trying to sell this deal to investors following a long stretch of suppressed valuations for smaller tech companies and a shortage of IPOs since the end of 2021.

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

Goldman Sachs and Morgan Stanley have long dominated IPO underwriting in tech, with JPMorgan Chase also battling to get in the mix. They’re all absent from the Cerebras deal, and sources with knowledge of the process, who asked not to be named because the talks are private, said they stayed away in part due to the risks associated with customer concentration and foreign investment.

The deal is being led by Citigroup and Barclays, which are both large global banks but not the ones that get leadership positions on top tech IPOs.

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

Cerebras’ auditor is BDO, which isn’t one of the so-called Big Four accounting firms. For the other three venture-backed IPOs this year, the accountants were KPMG (Reddit and Rubrik) and PwC (Astera Labs), which are two of the Big Four, along with Deloitte and Ernst & Young.

BDO declined to comment.

There’s also Cerebras CEO Andrew Feldman, who pleaded guilty in 2007 to one count of circumventing accounting controls when he was vice president of marketing at a public company called Riverstone Networks a few years earlier.

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

A Cerebras spokesperson declined to comment for this story.

The major Wall Street banks, for their part, are finding other ways to play in the burgeoning AI infrastructure market. Last week, Goldman Sachs, JPMorgan and Morgan Stanley were among a roster of banks that participated in issuing a $4 billion revolving line of credit to OpenAI. And on Friday, Nvidia GPU provider CoreWeave announced the close of a $650 million credit facility that was led by the top three tech banks.

For Cerebras, there’s still a path to an IPO, given the sheer excitement around AI chips and the dearth of investable opportunities in the market.

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

“Nvidia is making over 100% of the profits,” Thiel said in an on-stage interview at the event in Los Angeles. “Everybody else is collectively losing money.”

Cerebras is still in the money-losing column, reporting a second-quarter net loss of almost $51 million. However, excluding stock-based compensation, the company is close to breakeven on an operating basis.

Retail investor Jim Fitch, a retired homebuilder in Florida, is among those excited about the opportunity to get in early. Fitch, who said he sold out of his Nvidia stock years ago, told CNBC that the benefits outweigh the risks. He noted that Feldman, Cerebras’ co-founder and CEO, sold his prior company, SeaMicro, to Nvidia rival Advanced Micro Devices for more than $300 million over a decade ago.

Fitch is drawn to the promise of Cerebras’ technology, particularly its WSE-3 chip, which the company calls “the fastest AI processor on Earth,” packed with 4 trillion transistors.

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

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