Shares of Cerebras Systems Inc (NASDAQ:CBRS) have tanked around 17% over the past few days on investor concerns about ChatGPT-parent OpenAI using Nvidia Corp’s (NASDAQ:NVDA) GPUs for its new "GPT-1 Sol Ultrafast," according to Freedom Capital Markets.
The Cerebras Systems Analyst: Analyst Paul Meeks upgraded the rating from Hold to Buy, while maintaining the price target of $209.
The Cerebras Systems Thesis: With the demand for AI hardware expected to remain significantly higher than supply for several years, the company could do "plenty of business" with OpenAI, Meeks said in the upgrade note.
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Moreover, Cerebras Systems has strong partnerships with Advanced Micro Devices Inc (NASDAQ:AMD) and Amazon.com Inc’s (NASDAQ:AMZN) AWS business, he added.
The company specializes in fast AI inference (running existing models), the analyst noted. As a result, Nvidia chips may handle the setup phase, known as "prefill," while Cerebras Systems chips may still be needed for the response phase, or "decode," he said.
Street expectations reflected 3.3X revenue growth to $2.95 billion in 2027, from $887 million this year, Meeks said. "The key for this stock is whether they can add the necessary capacity on time and on budget," the analyst wrote.
The main risk for investors is not competition from Nvidia, rather the risks are timely power capacity additions and "entering the stock only when at least most of the company’s execution risk has been squeezed out because, frankly, there’s lots of it," he further stated.
The pressure on the company’s stock from competition with Nvidia seems "exaggerated," as this is likely "a minor threat even if proven true," Meeks wrote.
CBRS Price Action: Shares of Cerebras Systems had risen by 2.75% to $174.18 at the time of publication on Friday.
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