Key Takeaways:
Morgan Stanley raised its price target on Cerebras Systems (CBRS) to $273 from $250, implying about 35% upside from the stock's after-hours level following the AI chipmaker's first earnings report as a public company.
The new target reflects the bank's conviction in Cerebras' wafer-scale architecture as a durable advantage in AI inference, where the company claims speeds more than 10 times faster than graphics processing units, Morgan Stanley said in a note Tuesday. The firm maintained its overweight rating on the stock.
Cerebras reported Q1 core revenue of $191.3 million, up 92% from a year earlier, and a near break-even core operating loss of $3.5 million. The company ended the quarter with $3.3 billion in liquidity after raising $6.4 billion in the largest semiconductor initial public offering in history.
The stock fell about 11% in after-hours trading Tuesday after Cerebras guided for Q2 core gross margin of 36% to 38%, down from 46.5% in the first quarter. Chief Financial Officer Bob Komen attributed the decline to the cost of renting back systems from a customer to accelerate capacity deployment while the company builds out its own data centers.
The margin compression is temporary, Morgan Stanley said, and the bank expects Cerebras to return toward its target of 60% gross margin as it transitions away from rented infrastructure. The company's partnership with OpenAI, including a $20 billion multi-year compute agreement, and a definitive deal with Amazon Web Services to deploy Cerebras systems in AWS data centers underpin the long-term thesis.
Cerebras shares debuted at $185 in May, surged to an intraday high of $386, and closed Monday at $224.43 before the earnings release. The stock now trades at about 41 times projected 2028 earnings, according to consensus estimates compiled by Bloomberg. A lock-up period expiring Thursday could release nearly 13% of IPO shares for sale by early backers and insiders.
The price target upgrade signals that Morgan Stanley sees the post-earnings selloff as a buying opportunity. Investors will watch for updates on data center capacity deployment and the timing of revenue contribution from the AWS partnership, which management said would begin to appear in 2027.
This article is for informational purposes only and does not constitute investment advice.
