Contrarian technology investor Paul Meeks, who previously cautioned against Cerebras Systems due to overvaluation, is now bullish on the AI chip stock after a 72% decline from its peak. He projects the stock could nearly double to $209, citing Cerebras’ innovative Wafer-Scale Engine, strong position in AI inference, and significant customer commitments, including a $20 billion contract with OpenAI. Meeks views the current share price as an attractive entry point despite execution risks, seeing long-term potential overlooked by the market.
As a seasoned technology investor with a penchant for contrarian plays, I always seek out opportunities where others see only risk. Right now, Cerebras Systems, the Sunnyvale, California-based AI chipmaker, has captured my undivided attention. When Cerebras first hit the public markets in May, its innovative technology impressed me, but its soaring valuation — peaking at $386 after an $185 IPO — led me to caution investors against buying. In fact, I publicly warned that the stock was grossly overvalued. However, the landscape has dramatically shifted. With Cerebras shares now down approximately 72% from their peak, I believe a compelling investment opportunity has emerged.
Key to my renewed optimism is Cerebras' groundbreaking Wafer-Scale Engine chip design, which offers a distinct competitive advantage in the burgeoning field of AI computing. This unique architecture allows the chip to consolidate immense processing power and bandwidth onto a single piece of silicon, significantly accelerating data processing by eliminating the need to constantly shuttle data between multiple separate chips. This is a game-changer, especially as the AI industry shifts focus.
For years, the AI race was primarily about training larger, more complex models. Today, the real frontier is AI inference – deploying these models to generate content and execute tasks efficiently. This is precisely where Cerebras' technology excels. Its design is exceptionally well-suited for rapid inference, positioning it as a formidable challenger to Nvidia’s dominant GPUs.
Furthermore, Cerebras isn't just a competitor; it's also a potential complement to Nvidia. Through a strategic partnership with Amazon Web Services (AWS), Cerebras is pioneering 'inference disaggregation.' This innovative approach divides the workload between two chip types: AWS’s Trainium chips handle the initial processing ('prefill'), while Cerebras takes on the response generation ('decode'). This collaboration could unlock a much larger market for Cerebras, expanding its reach beyond direct competition.
Cerebras has also successfully cultivated relationships with major tech players, including OpenAI, AMD, AWS, and Flex. What's particularly striking is the sheer scale of its contracted business relative to current revenues. The company boasts approximately $25 billion in remaining performance obligations, with a staggering $20 billion directly tied to OpenAI. While Cerebras still needs to ramp up its computing capacity to fulfill these commitments – a critical execution risk – I project its core revenue to more than triple, reaching approximately $2.8 billion by 2027, alongside achieving cash-flow positive status.
Currently, Cerebras shares are trading around $107. I view this significant sell-off as an attractive entry point into a company with truly innovative technology and substantial growth potential. My price target at Freedom Capital Markets is $209, suggesting an impressive 91% upside from current levels.
Naturally, risks persist. Cerebras must flawlessly execute on its considerable customer commitments and demonstrate its ability to thrive in a market largely controlled by Nvidia. However, the market appears overly fixated on these near-term uncertainties, overlooking the immense long-term potential of Cerebras. My journey with this stock has been a full circle: I warned against it when it was overvalued, and now, with its shares significantly depressed, I am on the other side of the trade. This transformation is the essence of contrarian investing: discovering opportunity amidst perceived risk.
Paul Meeks is the Managing Director and Head of Technology Research of Freedom Capital Markets. Meeks does not own shares personally or through the firm. All opinions expressed are solely his and do not reflect CNBC, its parent company, or affiliates. This content is for informational purposes only and does not constitute financial, investment, tax, or legal advice. Investors should consult their own financial advisors.
