Cerebras stock falls 18% as chip sales decline tests AI thesis

Cerebras Systems shares plunged more than 18% in premarket trading Thursday after the AI chip maker reported mixed second-quarter results that highlighted a sharp shift in its business model away from hardware sales.

The Sunnyvale, California-based company's cloud computing revenue roughly quadrupled year-over-year to $126 million, but hardware sales—including its signature AI chips—fell to $54.1 million from $70.3 million in the same quarter last year, according to details first reported by Reuters. The company also missed analyst revenue estimates despite raising its full-year outlook.

Why it matters

Cerebras has positioned itself as a potential challenger to Nvidia's dominance in AI chip hardware, and its stock had climbed 41% from its IPO price of $185. The earnings report reveals the company is increasingly deriving revenue from cloud services rather than chip sales—a fundamental business model shift that raises questions about its ability to compete directly with Nvidia in the semiconductor market. With Big Tech AI infrastructure spending expected to exceed $740 billion this year, investors are closely scrutinizing whether AI-focused companies can execute at the scale and speed required.

Margin pressure and execution concerns

The company's adjusted gross margin declined to 40.6% in the second quarter from 46.5% in the prior quarter, reflecting the challenges of its evolving revenue mix. This was only Cerebras's second earnings report as a public company.

Morgan Stanley analysts noted that "execution remains the key debate given the scale and speed of the capacity build required to support the ramp." Both Citi and Mizuho reduced their price targets slightly following the results, though the median analyst target still implied 15% upside from the previous closing price, according to LSEG data.

Broader AI infrastructure disappointment

Cerebras wasn't alone in disappointing investors Thursday. Cisco Systems shares fell more than 6% after the networking equipment maker's outlook failed to meet elevated expectations tied to AI data center expansion. Cisco's stock had gained over 60% this year on optimism about its role in the AI buildout. The company said it expects $7.5 billion in AI infrastructure orders from hyperscalers in fiscal 2027.

The dual selloffs underscore how high the bar has risen for companies positioned as AI infrastructure plays, with investors demanding not just growth but flawless execution to justify premium valuations.

Reuters first reported these earnings details on August 13, 2026.