Cerebras IPO has ‘too much hair’ as AI chipmaker tries to sell Wall Street on Nvidia alternative
Andrew Feldman, co-founder and CEO of Cerebras Systems, speaks at the Collision conference in Toronto on June 20, 2024.
Ramsey Cardy | Sportsfile | Collision | Getty Images
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.
Shunned by top banks
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.
Peter Thiel, president and founder of Clarium Capital Management LLC, speaks during the Bitcoin 2022 conference in Miami, Florida, on Thursday, April 7, 2022.
Eva Marie Uzcategui | Bloomberg | Getty Images
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.
Driverless WeRide robotaxis for Uber.
Courtesy: Uber
Uber on Wednesday rolled out fully driverless rides in its fourth market, launching the service in Abu Dhabi in partnership WeRide, a Chinese autonomous vehicle company.
The ride-hailing company said the launch in the United Arab Emirates capital represents the first driverless robotaxi service in the Middle East. In the U.S., Uber already offers robotaxi services in Austin, Phoenix and Atlanta through Alphabet’s Waymo.
Riders in Abu Dhabi can book a WeRide robotaxi when requesting an UberX or Uber Comfort ride, the ride-hailing company said.
WeRide, which is listed on the Nasdaq, formed its partnership with Uber in September 2024 and began offering autonomous rides with an operator on board in Abu Dhabi last December. Uber and WeRide also debuted robotaxi rides with a safety operator on board in Riyadh, Saudia Arabia, in October. In May, Uber said it plans to roll out the WeRide service to 15 more cities, including in Europe, over the next five years.
In recent years, Uber has bet big on autonomous vehicle technology through partnerships.
Uber started offering a robotaxi service in Austin and Atlanta earlier this year, and in Phoenix in late 2023. In July, the company landed a six-year robotaxi deal with electric vehicle maker Lucid and AV startup Nuro.
WeRide, meanwhile, has launched full driverless robotaxi services in China’s Beijing and Guangzhou, according to its website.
Uber has not said how it splits revenue from robotaxi rides with its partners.
Competitors have also readily adopted the technology, with Lyft announcing a deal with Waymo in September to launch robotaxis in Nashville next year.
Uber said the driverless vehicles in Abu Dhabi will operate in certain areas of Yas Island. Riders can boost their chance of a robotaxi drive by selecting the autonomous option. On-board support is available during the ride through the app and an in-vehicle tablet.
WATCH: WeRide CEO: We are using both Tesla and Waymo’s approach to scale robotaxi operations
Amazon’s new MK30 Prime Air drone is displayed during Amazon’s “Delivering the Future” event at the company’s BFI1 Fulfillment Center, Robotics Research and Development Hub in Sumner, Washington on Oct. 18, 2023.
Jason Redmond | AFP | Getty Images
Amazon is facing a federal probe after one of its delivery drones downed an internet cable in central Texas last week.
The probe comes as Amazon vies to expand drone deliveries to more pockets of the U.S., more than a decade after it first conceived the aerial distribution program, and faces stiffer competition from Walmart, which has also begun drone deliveries.
The incident occurred on Nov. 18 around 12:45 p.m. Central in Waco, Texas. After dropping off a package, one of Amazon’s MK30 drones was ascending out of a customer’s yard when one of its six propellers got tangled in a nearby internet cable, according to a video of the incident viewed and verified by CNBC.
The video shows the Amazon drone shearing the wire line. The drone’s motor then appeared to shut off and the aircraft landed itself, with its propellers windmilling slightly on the way down, the video shows. The drone appeared to remain in tact beyond some damage to one of its propellers.
The Federal Aviation Administration is investigating the incident, a spokesperson confirmed. The National Transportation Safety Board said the agency is aware of the incident but has not opened a probe into the matter.
Amazon confirmed the incident to CNBC, saying that after clipping the internet cable, the drone performed a “safe contingent landing,” referring to the process that allows its drones to land safely in unexpected conditions.
“There were no injuries or widespread internet service outages. We’ve paid for the cable line’s repair for the customer and have apologized for the inconvenience this caused them,” an Amazon spokesperson told CNBC, noting that the drone had completed its package delivery.
The incident comes after federal investigators last month opened a separate probe into a crash involving two of Amazon’s Prime Air drones in Arizona. The two aircrafts collided with a construction crane in Tolleson, a city west of Phoenix, prompting Amazon to temporarily halt drone deliveries in the area.
For over a decade, Amazon has been working to realize founder Jeff Bezos’ vision of drones whizzing toothpaste, books and other goods to customers’ doorsteps in 30 minutes or less. The company began drone deliveries in 2022 in College Station, Texas, and Lockeford, California.
But progress has been slowed by a mix of regulatory hurdles, missed deadlines and layoffs in 2023 that coincided with broader cost-cutting efforts by Amazon CEO Andy Jassy.
The company has previously said its goal is to deliver 500 million packages by drone per year by the end of the decade.
The hexacopter-shaped MK30, the latest generation of Amazon’s Prime Air drone, is meant to be quieter, smaller and lighter than previous versions.
Amazon says the drones are equipped with a sense-and-avoid system that enables them to “detect and stay away from obstacles in the air and on the ground.” The company recommends that customers maintain “about 10 feet of open space” on their property so drones can complete deliveries
The company began drone deliveries in Waco earlier this month for customers within a certain radius of its same-day delivery site who order eligible items weighing 5 pounds or less. The drone deliveries are supposed to drop packages off in under an hour.
Amazon has brought other locations online in recent months, including Kansas City, Missouri, Pontiac, Michigan, San Antonio, Texas, and Ruskin, Florida. Amazon has also announced plans to expand drone deliveries to Richardson, Texas.
Walmart began offering drone deliveries in 2021, and currently partners with Alphabet’s Wing and venture-backed startup Zipline to make drone deliveries in a number of states, including in Texas.
WATCH: Amazon unveils satellite terminal for enterprise customers — but Starlink still dominates
-
Sports2 years agoStory injured on diving stop, exits Red Sox game
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports3 years agoButton battles heat exhaustion in NASCAR debut
-
Sports3 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment3 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment1 year agoHere are the best electric bikes you can buy at every price level in October 2024