Cerebras IPO ‘too hairy’ as chipmaker tries to challenge Nvidia | Real Time Headlines

Artificial Intelligence Chip Manufacturer brain is trying to become the first major venture-backed tech company to go public in the U.S. since April and tap into investors’ insatiable appetite for technology. NVIDIAnow valued at US$3.3 trillion.

While Cerebras’ position in the AI ​​infrastructure space represents an important tailwind, Cerebras also faces challenges—most notably a heavy reliance on a single Middle Eastern customer—that have proven challenging as the company attempts to navigate Over the course of the Nvidia wave, these challenges may be too heavy to overcome. The estimated value is $4 billion in 2021brain is It is said Seeking to double its size in an IPO.

“There’s too much hair on this deal,” David Goldenis a new venture investor at Revolution Ventures and has led technology investment banking for the following companies JPMorgan Chase “From 2000 to 2006,” he said in an interview this week. “This would never have gotten past our underwriting committee.”

Cerebras was launched in 2016 and launched its first processor three years later. The company, based in Sunnyvale, Calif., claims its current chips are faster and more efficient at training large language models than Nvidia’s graphics processing units (GPUs).

In 2023, Cerebras’ sales more than tripled to $78.7 million. Cerebras said in its prospectus that revenue climbed to $136.4 million in the first half of 2024 and growth appears to be significantly accelerated. The company has signed an agreement to sell systems and services worth $1.43 billion, with prepayments expected by March 2025.

But the most obvious red flag in Cerebras’ filing relates to customer concentration. An Abu Dhabi-based company accounted for 87% of first-half revenue. client, G42,Depend on Microsoftand it is fully responsible for $1.43 billion in purchase commitments.

Cerebras does not list any other customers in its prospectus, but it does list a number of customers on its website, including AstraZeneca, GSK and Mayo Clinic. Cerebras said in the filing that as it expands its customer base, it plans to “aggressively pursue opportunities in healthcare, pharmaceuticals, biotech and other related sectors” and other areas where “our AI acceleration capabilities can solve critical computing bottlenecks.” .

In addition to relying on G42 for its business, Cerebras counts the company as an investor and is seeking approval from the U.S. Treasury Department’s Committee on Foreign Investment (CFIUS) to give the Middle Eastern company greater status. G42 has agreed to buy a $335 million stake by April, which at current levels would make it the largest owner. If G42 commits to spending $5 billion to buy Cerebras’ computing clusters, it can get $500 million worth of Cerebras stock.

CFIUS has the authority to review foreign investments in U.S. companies for potential national security concerns. Cerebras said in its filing that it does not believe CFIUS “has jurisdiction over G42’s purchase of our non-voting securities,” but added that “there can be no assurance that CFIUS will approve it.” Reuters reported on Tuesday Cerebras may delay its IPO and cancel a roadshow scheduled to begin next week due to the national security review. Reuters reported, citing people familiar with the matter.

U.S. lawmakers have expressed unease about G42’s historical ties to China through past investments and client relationships. The G42 said in February it had sell its shares Republican Rep. Mike Gallagher, chairman of the CPC Select Committee, wrote an article Letter of concern Commerce Secretary Gina Raimondo was briefed on what he described as the G42’s “extensive business relationships with Chinese military companies, state-owned entities and Chinese intelligence services.”

G42 did not respond to a request for comment.

Even with CFIUS approval, valuations of small technology companies have long been suppressed and IPO shortage Since the end of 2021.

One potential hurdle for Cerebras is that none of the major tech investment banks are involved.

Goldman Sachs and Morgan Stanley Long-term leading IPO underwriting in the technology field, JPMorgan Chase Also struggling blend in. None of them were involved in the Cerebras deal, the people said, speaking on condition of anonymity because the negotiations are private, in part because of the risks posed by client concentration and foreign investment.

The transaction is made by Citigroup and barclays bankboth of which are large global banks but not among the leaders in top tech IPOs.

Representatives for Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley declined to comment. Barclays did not respond to a request for comment.

Cerebras’ auditor is BDO, which is not one of the so-called Big Four accounting firms. In the other three venture-backed IPOs this year, the accountants are KPMG (Reddit and scarlet letter) and PwC (Astra Labs), two of the Big Four accounting firms, the other two being Deloitte and Ernst & Young.

BDO declined to comment.

Cerebras Chief Executive Andrew Feldman pleaded guilty in 2007 to one count of circumventing accounting controls several years earlier while serving as vice president of marketing for a publicly traded company called Riverstone Networks.

“What else can you add to make it more difficult?” Revolution King said.

A spokesman for Cerebras declined to comment.

For their part, major Wall Street banks are looking for other ways to play a role in the booming market for artificial intelligence infrastructure. Last week, banks including Goldman Sachs, JPMorgan Chase and Morgan Stanley participated in the issuance $4 billion revolving credit facility to OpenAI. On Friday, Nvidia GPU supplier CoreWeave announced the completion of a $650 million credit facility led by three major technology banks.

For Cerebras, there is still a path to an IPO, given the huge appeal of artificial intelligence chips and the lack of investable opportunities in the market.

Additionally, Nvidia is trading near a record price. Mizuho Securities estimates that Nvidia controls 95% of the market for artificial intelligence training and inference chips used in models such as OpenAI’s GPT-4. Venture capitalist Peter Thiel Said at the All-In Summit Nvidia was the only company in the space to post a profit last month.

“Nvidia made over 100% of the profits,” Thiel said in an interview onstage at the Los Angeles event. “Everyone else is losing money collectively.”

Cerebras remains in the red, reporting a second-quarter net loss of nearly $51 million. However, excluding stock-based compensation, the company is close to breakeven on an operating basis.

Retail investor Jim Fitch, a retirement homebuilder in Florida, was excited about the opportunity to get in early. Fitch said he sold Nvidia stock several years ago, telling CNBC the benefits outweighed the risks. He noted that Cerebras co-founder and CEO Feldman sold his previous company, SeaMicro, to an Nvidia competitor AMD More than a decade ago, it sold for more than $300 million.

Fitch is attracted by the promise of Cerebras’ technology, particularly its WSE-3 chips, which the company calls “the fastest artificial intelligence processor on the planet” and packed with 4 trillion transistors.

“It can do the job of 100 Nvidias,” Fitch said.

watch: Cerebras CEO talks competition with Nvidia