Cathie Wood Increases Stake in Cerebras Systems
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 17 hours ago
0mins
Source: Fool
- Investor Attention: Cathie Wood's recent purchases of Cerebras Systems stock reflect her confidence in this newly public AI chip company, which saw a 68% surge on its IPO day and raised $5.5 billion, marking the largest IPO of the year and indicating strong market recognition of its potential.
- Portfolio Positioning: Cerebras holds a 1.13% weight in the Ark Innovation fund and a 1.22% weight in the Ark Next Generation Internet fund, similar to Nvidia's holdings, suggesting Wood's strategy aims to capitalize on growth opportunities in the AI sector by diversifying her investments.
- Revenue Growth: Cerebras' revenue skyrocketed from $24 million in 2022 to $510 million last year, demonstrating robust market demand, particularly as its chips are now available through Amazon Web Services (AWS), which could significantly expand its customer base and future revenue potential.
- Risks and Opportunities: While Cerebras has yet to achieve operational profitability and faces fierce competition from Nvidia, its technological edge with oversized chips and the growing demand for computing power may allow it to carve out market share, attracting interest from risk-tolerant investors.
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About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Technological Advantages and Challenges: Cerebras's wafer-scale engine technology allows integration of multiple cores and memory on a 12-inch wafer, enhancing data processing speed; however, scalability to larger models remains a concern, potentially impacting its competitive edge.
- Major Contracts and Revenue Potential: The $20 billion deal with OpenAI is expected to generate $24.6 billion in remaining performance obligations, with approximately 15% anticipated to be recognized within 24 months, which could significantly boost revenue if executed successfully.
- Production and Customer Risks: Cerebras relies on TSMC for production and faces customer concentration and execution risks; failure to deliver servers for OpenAI on time could jeopardize contract commitments and future customer expansion, necessitating investor awareness of these uncertainties.
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- Significant Technological Edge: Cerebras's wafer-scale engine technology allows integration of multiple cores and memory on a single 12-inch wafer, enhancing data processing speed; however, doubts remain about its efficiency when scaling to larger models.
- Backlog Revenue Potential: As of last year, Cerebras had remaining performance obligations totaling $24.6 billion, primarily from its partnership with OpenAI, which could lead to substantial revenue growth in the next two years, though contract fulfillment risks must be considered.
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- Market Volatility Opportunity: The IPO of Cerebras has sparked a super-cycle excitement in the semiconductor sector, attracting a wave of speculators, as noted by Tradr ETFs' head, indicating that this volatility presents various trading opportunities for investors.
- Asset Management Scale: Tradr ETFs manages over $7 billion across its 65 leveraged ETFs, aiming to provide sophisticated investors with innovative trading tools that allow for precise market view expression.
- Risk Advisory: Investing in leveraged ETFs carries higher risks, and investors must understand the implications of leverage on returns, especially during periods of significant market volatility.
See More
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- First Day Performance: Cerebras shares surged 68% on their debut, but have since dropped over 22% since the close on May 14, indicating market concerns about future performance and prompting investors to carefully consider buying opportunities.
- Technological Advantages and Challenges: Cerebras's wafer-scale engine technology allows integration of multiple cores and memory on a 12-inch wafer, enhancing data processing speed; however, scalability to larger models remains a concern, potentially impacting its competitive edge.
- Major Contracts and Revenue Potential: The $20 billion deal with OpenAI is expected to generate $24.6 billion in remaining performance obligations, with approximately 15% anticipated to be recognized within 24 months, which could significantly boost revenue if executed successfully.
- Production and Customer Risks: Cerebras relies on TSMC for production and faces customer concentration and execution risks; failure to deliver servers for OpenAI on time could jeopardize contract commitments and future customer expansion, necessitating investor awareness of these uncertainties.
See More
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- Strong IPO Performance: Cerebras shares surged 68% on their debut on May 14, but have since fallen over 22%, indicating market concerns about the company's long-term prospects and prompting investors to reassess their holding risks.
- Significant Technological Edge: Cerebras's wafer-scale engine technology allows integration of multiple cores and memory on a single 12-inch wafer, enhancing data processing speed; however, doubts remain about its efficiency when scaling to larger models.
- Backlog Revenue Potential: As of last year, Cerebras had remaining performance obligations totaling $24.6 billion, primarily from its partnership with OpenAI, which could lead to substantial revenue growth in the next two years, though contract fulfillment risks must be considered.
- Production and Operational Challenges: Cerebras relies on TSMC's 5nm process for production and faces customer concentration and execution risks; failure to deliver OpenAI's servers on time could jeopardize future customer expansion and contract commitments.
See More
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- Trading Mechanism: As a decentralized exchange, Hyperliquid allows investors to trade perpetual contracts by posting collateral in stablecoins, providing indirect exposure to SpaceX, which could attract more liquidity to the platform.
- Revenue Growth: As of May 27, Hyperliquid's annualized revenue is nearing $656 million, with increased trading fees driving buying pressure on HYPE tokens, showcasing the platform's profit potential amid a wave of new listings, even though the contracts do not represent actual shares.
- Market Performance: The successful IPO of Cerebras Systems serves as a reference for Hyperliquid's contract pricing; while perpetual contracts cannot be converted into shares, they reflect insiders' valuation of the company, prompting investors to carefully assess the associated risks.
See More
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- Revenue from Trading Fees: Hyperliquid generates approximately $656 million in annual trading fees, with 99% of these fees used for repurchasing HYPE tokens, further driving up the token's price and reflecting the platform's potential profitability amid new listings.
- Market Pricing Capability: The contracts on Hyperliquid are believed to accurately discover prices, as evidenced by the case of Cerebras Systems, where the pre-IPO contract pricing aligned closely with the actual IPO price, demonstrating the market value of such contracts.
- Investment Risk Warning: While Hyperliquid offers investment opportunities, holding the contract does not equate to owning actual shares, and investors should carefully assess the risks and potential returns of the contracts to avoid losses due to market volatility.
See More
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- Dividend Increase: Nvidia announced a staggering 2,400% increase in its dividend during its Q1 FY2027 report, raising it from $0.01 to $0.25 per share, which, despite a yield of only 0.5%, indicates a growing commitment to shareholder returns that may attract income-seeking investors.
- Intensifying Competition: With competitors like Cerebras Systems going public, Nvidia's dominance in the GPU market is under pressure, particularly as the AI industry shifts from training to inference, necessitating increased R&D investments to maintain market share and competitive edge.
- R&D Investment Priority: Despite the dividend hike, Nvidia prioritizes R&D, planning to invest heavily in the coming years to support growth in AI, especially after launching its Vera CPU, which is expected to tap into a $200 billion addressable market.
- Long-Term Growth Potential: While Nvidia's dividend profile may not compare favorably to traditional high-dividend stocks, it remains a highly attractive long-term growth stock, with projected CPU revenues of around $20 billion by year-end, capitalizing on the ongoing growth in AI infrastructure spending.
See More
