According to Woofun AI, on November 12, EST, AI chip and cloud service provider Cerebras Systems (CBRS.US) released its third-quarter earnings report, setting a new high in single-quarter revenue and raising full-year guidance. After the market, the stock price rose by about 15%, but hardware revenue fell by nearly 30% year-on-year.
This structural contrast reveals a key point in the company's transformation from pure hardware sales to cloud services. While the market is cheering for a breakthrough in revenue, it also needs to be wary of the risk of shrinking the basic hardware market. Financial data shows that it is not traditional dominant products that drive total revenue growth, but explosive growth in cloud computing power services. This drastic change in revenue composition is reshaping the company's valuation logic and delivery rhythm. When interpreting this apparently impressive financial report, investors must go through the superficial revenue growth and examine the cross-cutting relationship between the shrinking hardware business and the expansion of cloud services behind it.
Judging from the deep deconstruction of the revenue structure, GAAP revenue increased by about $75.1 million year over year, but this was not a global boom. “Cloud and other services” alone is about $103 million more than the same period last year, and the increase even exceeds the company's overall net increase.
This means that the decline in hardware business has offset about a quarter of the increase in cloud business. Looking back at the same period last year, about $3 of every $10 in revenue came from cloud and other services, and cloud and other services contributed about two-thirds of revenue this quarter, establishing a dominant position.
Notably, Cerebras is expanding new channels to connect reasoning capabilities to the Oracle (ORCL.US) cloud platform and is expected to be available on Oracle Cloud infrastructure in 2027, providing the company with a new entry point to reach enterprise customers.
According to data compiled by Woofun AI, the OpenAI agreement confirmed revenue of 72.4 million US dollars during the quarter, accounting for about half of the revenue from cloud and other services, and became the cornerstone for supporting the high growth of the cloud business. This shift from “selling equipment” to “selling computing power” not only changed the timing of revenue recognition, but also redefined the delivery chain: from tracking the arrival of equipment to tracking computer room electricity, machine installation, and customer usage services. The expansion of new channels and the deep binding of major customers together form the two pillars of current high revenue growth, but it also means that the company's dependence on a few large customers has increased significantly.
The income statement shows a distinct two-track system, and the huge difference between GAAP caliber and Core caliber reveals the impact of accounting treatment and equity incentives. According to GAAP, gross profit fell from about $55.1 million in the same period last year to about US$42.1 million. Although total sales were larger, the amount of money that could be used to cover R&D, sales, and management expenses after deducting direct costs decreased. In particular, the gross profit space for the hardware business narrowed markedly. Deeper losses are reflected at the operating level: GAAP's operating loss was $224 million, compared to just $33.11 million for the Core caliber. The core factor responsible for this huge difference is equity incentives, which are distributed among revenue costs and various operating expenses, and account for about 80% of the difference in losses of the two calibers. Although stock remuneration does not directly correspond to current cash expenses, it significantly affects the distribution of shareholders' equity.
In addition, the Core Caliber also excluded some data center transfers of revenue and costs, and amortization related to warrants granted to some customers was added back, causing Core revenue to be higher than GAAP revenue. This accounting adjustment resulted in an operating loss of approximately $106 for every $100 of revenue recorded in GAAP accounts. Although the adjusted figure was still a loss, the extent was greatly reduced. The gap between the two ledgers is essentially a financial imprint left by customer agreement terms and employee remuneration arrangements. Investors need to be wary of the potential erosion of such non-cash expenses on long-term profitability.
In terms of future prospects, there is a huge delivery pressure and break-even game hidden behind the upward guidance. The company's annual core revenue guidance in the summer was less than 900 million US dollars, and the lower limit of the new range is already higher than the upper limit of the old range, and the annual revenue forecast has been moved upward by 65 million US dollars. The midpoint of Core's revenue guidance for the fourth quarter was US$320 million, about 39% higher than the actual revenue for the third quarter, which placed extremely high demands on year-end delivery.
Meanwhile, Core's operating profit margin for the fourth quarter is expected to be in the range of negative 1% to positive 1%, approaching the operating break-even line. This optimistic expectation is also supported by huge contracts to be fulfilled: revenue distributed from outstanding contractual obligations is $26.1 billion, a significant portion of which comes from the OpenAI agreement; the total power capacity of the contracted data center is 700 megawatts, which is expected to be delivered by the end of 2027.
Additionally, Core's gross margin guidance was 47% to 49%, up from 41% in the third quarter. This means that the company must not only deliver more revenue in the fourth quarter, but also ensure that every dollar of revenue leaves more gross profit. How far we are from operating break-even depends on whether these two indicators can be achieved at the same time. The contract amount needs to be confirmed gradually as computing power is delivered. Any delay in delivery or gross profit that falls short of expectations may defeat the break-even target. This is the second major transformation test faced by Cerebras after a slowdown in hardware sales, and the results will determine whether the company can truly bridge the gap from chipmaker to cloud service provider.