Cerebras IPO has ‘an excessive amount of hair’ as chipmaker tries to tackle Nvidia

AI chipmaker Cerebras is attempting to be the primary main venture-backed tech firm to go public within the U.S. since April and to capitalize on buyers’ insatiable demand for Nvidia, now valued at $3.3 trillion.

Whereas its place in synthetic intelligence infrastructure represents a significant tail wind, Cerebras has challenges — most notably a hefty reliance on a single Center Jap buyer — which will show too weighty to beat within the firm’s try and experience the Nvidia wave. Valued at $4 billion in 2021, Cerebras is reportedly searching for 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 funding banking at JPMorgan Chase from 2000 to 2006, mentioned 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 corporate, headquartered in Sunnyvale, California, claims its present chip is quicker and extra environment friendly than Nvidia’s graphics processing unit, or GPU, for coaching giant language fashions.

In 2023, Cerebras’ gross sales greater than tripled to $78.7 million. Within the first half of 2024, income climbed to $136.4 million, and development seems poised to ramp up considerably, as Cerebras says in its prospectus that it is signed agreements to promote $1.43 billion price of programs and companies, with prepayment anticipated earlier than March 2025.

However probably the most obvious crimson flag in Cerebras’ submitting pertains to buyer focus. One firm primarily based in Abu Dhabi accounted for 87% of income within the first half of the 12 months. The client, G42, is backed by Microsoft, and it is totally accountable for the $1.43 billion buy dedication.

Cerebras does not listing another purchasers in its prospectus, however it does identify a couple of on its web site, together with AstraZeneca, GlaxoSmithKline and Mayo Clinic. Cerebras says within the submitting that, in increasing its buyer base, the corporate plans to “aggressively pursue opportunities in relevant sectors such as healthcare, pharmaceutical, biotechnology” and different areas “where our AI acceleration capabilities can address critical computational bottlenecks.”

Along with its reliance on G42 for enterprise, Cerebras counts the corporate as an investor, and it is searching for clearance from the Treasury Division’s Committee on Overseas Funding within the U.S., or CFIUS, to present the Center Jap agency an even bigger place. G42 has agreed to buy a $335 million stake by April that, at present ranges, would make it the biggest proprietor. G42 can choose up $500 million extra in Cerebras shares if it commits to spend $5 billion on the corporate’s computing clusters.

CFIUS has the authority to evaluation overseas investments in U.S. firms for potential nationwide safety issues. Cerebras mentioned in its submitting that it does not imagine CFIUS has “jurisdiction over G42’s purchase of our non-voting securities” however added that “there is no guarantee that CFIUS will approve” it. Reuters on Tuesday reported that Cerebras was prone to delay its IPO and name off its roadshow, scheduled to begin subsequent week, as a consequence of a nationwide safety evaluation. Reuters cited individuals acquainted with the matter.

U.S. lawmakers have expressed unease about G42’s historic ties to China, by each previous investments and buyer relationships. G42 mentioned in February that it had bought its stakes in Chinese language firms after Rep. Mike Gallagher, R-Wi, chairman of the Choose Committee on the Chinese language Communist Social gathering, wrote a letter of concern to Commerce Secretary Gina Raimondo about what he referred to as G42’s “extensive business relationships with Chinese military companies, state-owned entities and the PRC intelligence services.”

G42 did not reply to a request for remark.

Even when it achieves CFIUS approval, Cerebras has quite a bit to beat in attempting to promote this deal to buyers following an extended stretch of suppressed valuations for smaller tech firms and a scarcity of IPOs because the finish of 2021.

Including to Cerebras’ listing of potential roadblocks is the truth that not one of the major tech funding banks are concerned.

Goldman Sachs and Morgan Stanley have lengthy dominated IPO underwriting in tech, with JPMorgan Chase additionally battling to get within the combine. They’re all absent from the Cerebras deal, and sources with information of the method, who requested to not be named as a result of the talks are personal, mentioned they stayed away partially because of the dangers related to buyer focus and overseas funding.

The deal is being led by Citigroup and Barclays, that are each giant world banks however not those that get management positions on prime tech IPOs.

Representatives from Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley declined to remark. Barclays did not reply to a request for remark.

Cerebras’ auditor is BDO, which is not one of many so-called Large 4 accounting corporations. For the opposite three venture-backed IPOs this 12 months, the accountants have been KPMG (Reddit and Rubrik) and PwC (Astera Labs), that are two of the Large 4, together with Deloitte and Ernst and Younger.

BDO declined to remark.

There’s additionally Cerebras CEO Andrew Feldman, who pleaded responsible in 2007 to 1 depend of circumventing accounting controls when he was vice chairman of promoting at a public firm referred to as Riverstone Networks a couple of years earlier.

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

A Cerebras spokesperson declined to remark for this story.

The main Wall Avenue banks, for his or her half, are discovering different methods to play within the burgeoning AI infrastructure market. Final week, Goldman Sachs, JPMorgan and Morgan Stanley have been amongst a roster of banks that participated in issuing a $4 billion revolving line of credit score to OpenAI. And on Friday, Nvidia GPU supplier CoreWeave introduced the shut of a $650 million credit score facility that was led by the highest three tech banks.

For Cerebras, there’s nonetheless a path to an IPO, given the sheer pleasure round AI chips and the dearth of investable alternatives available in the market.

Additionally, Nvidia is buying and selling close to a report. Mizuho Securities estimates that Nvidia controls 95% of the marketplace for AI coaching and inference chips used for fashions like OpenAI’s GPT-4. Enterprise capitalist Peter Thiel mentioned on the All-In Summit final month that Nvidia is the one firm within the house that is getting cash.

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

Cerebras remains to be within the money-losing column, reporting a second-quarter web lack of virtually $51 million. Nonetheless, excluding stock-based compensation, the corporate is near breakeven on an working foundation.

Retail investor Jim Fitch, a retired house builder in Florida, is amongst these excited in regards to the alternative to get in early. Fitch, who mentioned he bought out of his Nvidia inventory years in the past, informed CNBC that the advantages outweigh the dangers. He famous that Feldman, Cerebras’ co-founder and CEO, bought his prior firm, SeaMicro, to Nvidia rival Superior Micro Gadgets for greater than $300 million over a decade in the past.

Fitch is drawn to the promise of Cerebras’ expertise, notably its WSE-3 chip, which the corporate calls “the fastest AI processor on Earth,” full of 4 trillion transistors.

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

WATCH: Cerebras CEO on competitors with Nvidia