Cerebras plummets! Hardware revenue unexpectedly declines, facing demand fluctuations on the path to "challenging Nvidia."

Author: Yang Chen, Wallstreet News

Cerebras Systems' hardware sales unexpectedly declined, exposing the instability of its chip product sales, but the strong growth in cloud computing business somewhat alleviated market concerns.

Cerebras reported its Q2 2026 financial results on Wednesday, showing a 74% year-over-year increase in GAAP revenue to $180.1 million. The company's core revenue reached $210 million, a 103% year-over-year increase.

Q2 hardware revenue was $54.1 million, a 23% year-over-year decline, while cloud computing and other service revenue reached $126 million, a 281% year-over-year increase.

This result also reveals that Cerebras' business model is changing: the cloud computing business has surpassed the hardware business, becoming the company's largest source of revenue. Cerebras CEO Andrew Feldman stated that the hardware business will exhibit "bumpy" growth, which is characteristic of this business.

Cerebras' stock price fell as much as 17% in after-hours trading, after rising 11.6% on Wednesday.

Unexpected Decline in Hardware Revenue, Cloud Business Becomes the Highlight

From a business structure perspective, the most noteworthy change in Cerebras' Q2 is the contrast between hardware and cloud business.

The financial report shows that Q2 hardware revenue decreased from $70.3 million in the same period last year to $54.1 million, a decline of 23%. Meanwhile, cloud computing and other service revenue surged from $33 million to $126 million, an increase of 281%. On a core basis, cloud and other service revenue was $127.7 million, a 287% year-over-year increase.

This means that Cerebras is no longer a chip company that solely relies on selling AI computing systems for revenue. As clients like OpenAI expand their demand for AI inference computing, the company is increasingly generating revenue by providing computing power services through the cloud.

Cerebras CEO Andrew Feldman stated that the company will continue to adhere to a "dual-track" model of hardware and data center services, "We want to meet their needs in the areas where customer growth is fastest."

However, the decline in hardware business remains a core concern for the market. Cerebras had previously positioned its wafer-scale chip WSE as a challenger to NVIDIA's GPUs, and the decline in hardware sales indicates that this business has not yet formed a stable, linear growth trajectory.

Feldman commented that the hardware business itself will experience significant fluctuations.

Performance Guidance Exceeds Expectations

Despite the decline in hardware business, Cerebras' future guidance is significantly stronger than market expectations.

The company expects core revenue for Q3 to be approximately $214 million to $216 million, with a midpoint of $215 million, exceeding the market average expectation of $212 million; core gross margin is expected to be 38% to 40%, also higher than the market expectation of about 36%.

The full-year guidance has also been raised. Cerebras expects core revenue for 2026 to be $880 million to $890 million, up from a previous forecast of $855 million to $865 million.

The full-year core gross margin is expected to be 41% to 43%, up from a previous estimate of 38% to 41%, while analysts previously expected Cerebras' full-year adjusted gross margin to be only 35.89%.

In other words, from the perspective of future performance guidance, the numbers provided by Cerebras are significantly better than market expectations; however, from the current business structure, the unexpected decline in hardware revenue has raised alarms for investors.

The company's financial report shows that Q2 core total revenue was $209.9 million, a 103% year-over-year increase; core gross margin reached 40.6%, an increase of about 9.4 percentage points compared to the same period last year. Core net loss narrowed significantly from $40.5 million in the same period last year to $6.9 million.

Why Did the Stock Price Still Drop Significantly After Hours?

The market's reaction to the financial report indicates that investors are concerned not only about whether Cerebras can exceed next quarter's revenue expectations but also about reassessing the quality and sustainability of the company's growth.

Cerebras' stock price has already experienced significant increases since its IPO, with the market previously betting that it could capture market share from NVIDIA in the AI inference market due to its unique wafer-scale chip architecture. Therefore, when hardware revenue declined by 23% year-over-year, even with rapid growth in cloud business and an upward revision of full-year guidance, it was easy to trigger profit-taking.

This suggests that the market's valuation of Cerebras already incorporates quite high growth expectations, and simply "exceeding expectations" in guidance may not be enough to offset concerns arising from the decline in core hardware business.

Notably, the company's Q2 GAAP hardware gross margin was only 1.8%, although the core basis hardware gross margin reached 38.8%.

The financial report shows that Cerebras adjusted core metrics for customer warrants, stock compensation, and data center expenses, resulting in a significant difference between GAAP and core metrics.

AI Inference Demand Becomes the Core of Cerebras' Growth

Cerebras is currently betting on the AI inference market.

Compared to training large models, inference occurs after users make requests to AI applications like chatbots. As AI applications transition from model training to large-scale commercial deployment, the demand for low-latency, high-throughput inference computing power is rapidly growing.

Cerebras' core product, WSE, uses a wafer-scale architecture that integrates a large amount of computing resources onto a single massive chip. The company believes that this architecture can reduce the data transfer between numerous chips in traditional GPU systems and improve AI inference speed.

The company stated that its system can currently support OpenAI's GPT-5.6 Sol at a speed of 750 tokens per second and is collaborating with AMD to develop a separated inference solution, expected to go into production in Q4 2026. Meanwhile, the company plans to introduce related technology to AWS's Amazon Bedrock in Q1 2027.

Cerebras also stated that it has signed new cloud computing capacity agreements, with clients including AI programming companies Cognition and Lovable, and has served clients such as Block, Figma, AlphaSense, GSK, and CrowdStrike.

Not Using HBM Becomes an Advantage in Cost and Supply Chain

In the context of the AI chip industry being generally affected by tight supply and rising prices of HBM high-bandwidth memory, Cerebras is also trying to leverage its architecture for cost advantages.

The company stated that its wafer-scale architecture does not rely on HBM and does not use advanced packaging like CoWoS or 3nm processes, which are currently tight links in the AI chip supply chain.

Feldman noted that the significant price increase of NVIDIA's AI chips is related to the rising costs of HBM, while Cerebras, by not using HBM, may gain some advantage in an environment of rising component prices.

However, whether this advantage can ultimately translate into sustained hardware sales growth still needs further verification. The recent decline in hardware revenue year-over-year precisely indicates that Cerebras still faces challenges in converting technological advantages into stable commercial revenue.

Holding $25.4 Billion in Remaining Orders, Key to Next Phase Lies in Delivery Capability

Cerebras' greatest confidence currently comes from its massive orders and capital reserves.

As of the end of June, the company's remaining performance obligations reached $25.4 billion, indicating a substantial scale of contracts that have been signed but not yet recognized as revenue. The company stated that it plans to achieve more than threefold revenue growth by 2027.

Meanwhile, the company raised approximately $6.4 billion in its IPO this year, and as of the end of June, it had approximately $8.6 billion in cash, cash equivalents, restricted cash, and short-term investments, along with a debt financing capacity of $850 million.

To fulfill these orders, the company is rapidly expanding its production capacity.

Cerebras stated that its manufacturing capacity will expand more than tenfold by 2026, and it has added production lines at Flex, Sanmina, and Rocket EMS; as of the end of June this year, the company has signed, is constructing, or has put into use data center capacity exceeding 600MW, which is planned to be delivered by the end of 2027.