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Roula Khalaf, editor of the FT, picks her favorite stories on this weekly newsletter.
Nvidia is at the middle of what we call the AI ​​financial complex, but there are many people trying to capitalize in the marketplace hustle and bustle. Cerebras Systems now has filed for an IPO, and it can be an interesting test of how AI-crazy investors have change into.
As mainFT quoted a VC as saying in a roundup of contenders to Nvidia's throne last month:
The desire of public investors to search out and support the following Nvidia is sort of insatiable. It's not nearly following the newest trend. The momentum also advantages several VC-backed chip startups which have been hard at work for nearly a decade.
The rankings are correspondingly high. Bloomberg reported last week that the Silicon Valley-based maker of chips optimized for artificial intelligence hopes to lift $1 billion at a valuation of $7 billion to $8 billion for a corporation founded in 2016 and only began generating income in 2019.
But Cerebras' pitch is pretty transparent: in response to FT Alphaville, the summary prospectus alone accommodates 142 mentions of “AI”. We've given up counting the remainder S-1 filing. The core product is a wafer-sized chip. . .
. . . According to Cerebras, this leads to significantly more memory and faster computing than other commercially available GPUs.
This allows Cerebras customers to resolve problems in less time and with less power consumption. Our AI computing platform combines processors, systems, software and AI expert services to dramatically speed up even the most important and strongest AI models. It significantly reduces training times and inference latencies while reducing programming complexity.
We won't even try to guage the technology here. FTAV is primarily a financial blog and fortunately there’s so much to find there.
For example, revenue greater than tripled to $78.7 million in 2023 and increased to $136.4 million in the primary six months of 2024. However, that also means the corporate stays extremely unprofitable, with a net lack of $66.6 million thus far this yr, concerning the same annual run rate as in 2023.
(Sorry for the terrible size, zoomable version here)
Another thing that stood out was that Cerebras admitted in its risk statements that “we currently generate a significant slice of our revenue from one customer, G42, and a significant slice of our revenue from a limited number of shoppers.”
And by significant, Cerebras really means significant and ascendant. From the file, with FT Alphaville's emphasis below:
Group 42 Holding Ltd (along with its subsidiaries “G42”) accounted for 83% and 87% of our total revenue for the yr ended December 31, 2023 and the six months ended June 30, 2024, respectively. Our dependence on our relationship with G42 exposes us to various risks. Any opposed changes in G42's demand, in G42's ability or willingness to perform under its contracts with us, within the laws or regulations applicable to G42 or the regions by which it operates, or in our a broader strategic relationship with G42 would harm our business, financial condition, results of operations and prospects. Even if G42 continues to be satisfied with our offerings, it is feasible that it can not must purchase additional AI computing power or services in the identical quantities as in prior periods, or that G42's ability to buy our products may change for reasons changes which can be beyond its control. G42 could also decide to purchase more AI computers from our competitors.
In addition, customers representing 10% or more of total trade receivables as of December 31, 2023 consisted of 4 customers (including G42) representing 43%, 22%, 15% and 15% of our trade receivables and services were omitted. Two customers accounted for 68% and 16% of our receivables as of June 30, 2024, respectively. This customer concentration increases the chance of quarterly fluctuations in our operating results and our sensitivity to material opposed developments at or in our relationships with our significant customers. The loss, a cloth reduction in sales to any of our significant customers, or the default of any of our significant customers could adversely affect our business, financial condition, results of operations and prospects.
So what's the boring name G42? An AI company based in Abu Dhabi, the capital of the United Arab Emirates, that has invested heavily in Cerebras' 2021 Series F and received a somewhat controversial $1.5 billion investment from Microsoft earlier this yr.
The US has imposed export controls on AI technology which may be transferred to countries like China, and it appears the Cerebras chips they purchased are literally getting used within the US, which sounds strange. Our focus again below:
While we’ve got received an export license from BIS to export, re-export or transfer (domestic) our CS-2 systems to G42 within the United Arab Emirates, all systems that we’ve got sold to G42 or are subject to orders from The weapons placed within the G42 have been used or are intended to be utilized in the United States, which doesn’t require an export license from the BIS. To the extent that we cannot export to a particular customer with no license from BIS, we may apply for a license for the client. However, the licensing process is time-consuming. There is not any guarantee that BIS will grant such a license or that BIS will process the license application in a timely manner. Even if BIS grants a license, it could impose onerous conditions that we or our customer cannot accept or are unwilling to simply accept.
So it's a fast-growing but wildly unprofitable company that’s entirely reliant on selling its products to one in all its largest investors, who may not have the opportunity to get them in another country?
Drop FTAV for one yard.
