Cerebras IPO filing points to a recurring concern in AI: customer concentration

By Therese Poletti

One customer accounted for 87% of the company's revenue in first half of 2024, filing shows

The much-anticipated IPO by Cerebras Systems - the first chip maker of the AI era to go public - also included information on the concentration of its customers, an issue investors are seeing at other AI hardware companies.

On Monday, Cerebras filed documents for an initial public offering with the Securities and Exchange Commission. It plans to go public on the Nasdaq under the ticker CBRS, but it did not disclose its offering amount or the timing. It reported revenue of $78.7 million for 2023, up from $24.6 million in the year-earlier period, and $136.4 million for the first six months of 2024.

Of additional interest to investors is the fact that the chip designer, which says its makes the world's largest chips designed to run artificial intelligence, has a high concentration of its business coming from a small number of customers.

"Revenue from significant customers, meaning those representing 10% or more of total revenue, was composed of one customer accounting for 87% of the company's revenue for the six months ended June 30, 2024" Cerebras said in its filing. "Two customers accounted for 43% and 14%, respectively, of the company's revenue for the six months ended June 30, 2023."

Its biggest customer in 2024 is G42 of the United Arab Emirates, a conglomerate that includes a data-center and cloud-services business, which signed a deal to buy up to nine AI supercomputers from Cerebras.

Cerebras is not alone. A few other companies that have had big revenue surges due to the AI boom also have had concentrations of customers. Super Micro Computer Inc. (SMCI) said in its fiscal third-quarter 10Q filing that two customers made up 38% of its revenue in the March quarter, and that three customers made up 61% of its accounts receivable that quarter.

Nvidia Corp. (NVDA) too, has stated that four customers made up 46% of its revenue in its most recent fiscal second quarter. "Sales to direct Customers, A, B, C and D represented 14%,11%, 11% and 10% of total revenue, respectively, for the second quarter of fiscal year 2025, all of which were primarily attributable to the Compute & Networking segment," Nvidia said in its most recent quarterly filing.

Those customers are believed to include cloud-service providers like Microsoft Corp.'s (MSFT) Azure, Amazon.com's (AMZN) AWS and social-media giant Meta Platforms Inc. (META), which are among the biggest-spending companies building out AI infrastructures in their data centers.

Investors typically see big customer concentrations as a red flag for a company, because if a large customer stops buying, it could lead to big swings in revenue. Right now, the AI spending boom is still on the upswing, but it's feasible in the future that the revenue fluctuations could go the other way. However, company executives on earnings conference calls have said that they do not see an end to the AI spending boom anytime soon.

"We are at the beginning of our journey to modernize $1 trillion worth of data centers from general-purpose computing to accelerated computing," Nvidia Chief Executive Jensen Huang told analysts last month.

Still, yet another example of big customers doing much of the buying of AI hardware could serve as another red flag for investors who are already getting concerned about their return-on-investment in the AI space.

-Therese Poletti

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10-01-24 0455ET

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