Cerebras Systems Inc. (NASDAQ:CBRS) traded at around $175 on October 7, down 1.16% on the day and below the $185 price of its May initial public offering.
Asked about the stock on the October 6 episode of Mad Money, Jim Cramer said it was a “good company, too expensive a stock.” He added that viewers would hear that phrase from him often about artificial intelligence names.
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The Gross Margin Is Where the Price Objection Starts:
Cramer separated the business from the valuation, and one figure supports both halves of that. Gross margin is 34.90%. For a company designing its own silicon, that is a low figure, and it says the product is sold against competition rather than into a shortage.
Revenue grew 74.30% in the most recent quarter, so the demand he likes is genuinely there. The operating line is what the gross margin cannot fund. Operating margin is negative 264.97%. Spending more than three dollars for every dollar of revenue is why this is a story about the future rather than the accounts.
Billionaire investors hold ten semiconductor stocks. The one ranked first has returned 24% since June.
The Stock Has Already Done Part of What He Wants:
Cramer’s usual remedy for an expensive stock is to wait for it to come in. This one already has. The company listed on May 14 at $185 a share and closed its first session near $311. The shares now trade at around $175, which is below the offering price and 55% beneath the high of $386.34 set since listing.
The multiple is still demanding on the measures that exist. The stock trades at 61.09 times sales and 137.44 times forward earnings. Capital spending is running well ahead of the cash coming in. Operating cash flow was $66.31 million against $746.52 million of capital expenditure.
Net margin is negative 75.27%, so the company loses roughly 75 cents on every dollar of revenue it books. That leaves free cash flow of negative $680.21 million, covered by $7.92 billion of cash on the balance sheet. In January, we ranked ten stocks for high returns. The one we put first has returned almost 30% since.
The Valuation Case:
Cerebras traded at around $175 on October 7 and is worth $41.59 billion. Sustainability is not the issue while $7.92 billion of cash sits against $1.49 billion of debt. There is no trailing earnings multiple because the company reported a loss of $5.08 a share. Price-to-book of 4.35 on book value of $40.27 a share is the least stretched figure in the set. Short interest of 11.41% of the float shows a meaningful position against the stock despite the fall already seen.
Conclusion:
Cramer’s two-part verdict is supported on both sides. Revenue grew 74.30% and the company holds $7.92 billion of cash against $1.49 billion of debt, which is a business with time to execute. However, a 34.90% gross margin is thin for custom silicon, operating margin is negative 264.97%, and free cash flow was negative $680.21 million. At 61.09 times sales, the price still assumes the shortage lasts. The number to watch is gross margin, because 34.90% is what decides whether the revenue growth ever pays for itself.
Market Sentiment:
Cerebras Systems Inc. was held by 78 hedge funds with a combined stake value of about $7.25 billion at the end of Q2 2026 in the Insider Monkey database. The company does not appear in the previous quarter’s database because its shares were not yet publicly traded.
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This article is originally published at Insider Monkey.
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