Cerebras Stock Is Under Pressure, But Cathie Wood Bets $17.2 Million On It

Cathie Wood is leaning into Cerebras Systems (CBRS) stock's recent weakness. Ark Invest (ARKK) bought 93,290 shares of Cerebras on August 25 through two of its ETFs, with the position worth about $17.2 million at the time. The move came at a time when Cerebras stock had been extremely volatile around its biggest product catalysts of the year. Following the highly anticipated August 18 Supernova event, investors locked in profits, with the stock plummeting 8% in the last month and 32.4% since its debut on May 14.

While the timing stands out, it is not unusual for Wood to add exposure while investors were still digesting the selloff. Why is Wood betting $17 million on Cerebras stock, and should other investors follow suit?

The Situation Is More Complicated Than The Selloff Suggests

Wood is well-known for ignoring short-term weaknesses in a business and focusing on the long-term picture. The case is the same here. She isn't necessarily betting Cerebras has already solved every problem facing its business. She appears to be betting that while the market is heavily focused on the company's near-term challenges, it is ignoring the fact that Cerebras is building infrastructure for a much larger opportunity.

In the second quarter, Cerebras reported a 103% year-over-year (YOY) increase in core revenue to $209.9 million, benefiting heavily from the expansion of its cloud business and the ramp of its OpenAI deployment. The cloud business generated $127.7 million, increasing 287% YOY, while core hardware revenue rose 17%. The company reported a core gross margin of 40.6%, lower than the 46.5% achieved in the first quarter. CFO Bob Komin explained that the company has been renting back some of its own systems from cloud customers and deploying that capacity through Cerebras Cloud to meet demand more quickly. Because rented capacity is more expensive, it weighs on short-term margins. However, core operating margin improved to negative 16%, compared to negative 42% a year earlier.

While Cerebras' margin pressure is real, management believes it is temporary and will improve by Q4 as more company-owned systems are brought online. The company even aims to achieve a long-term core gross margin of more than 60%. Investors will have to monitor to see if margins rebound as owned capacity replaces rental systems.