Cerebras is the hot new AI chipmaker. Here's Jim Cramer's advice on the stock

In a recent analysis, Jim Cramer of CNBC advised investors to exercise caution regarding shares of Cerebras Systems following its remarkable market debut. He expressed concerns about the stock's valuation, stating, "While there may come a time when I could recommend Cerebras, I currently find it hard to justify its valuation after such a significant initial surge. For now, it's wise to hold back and wait for a more favorable entry point. At these prices, it's just too expensive for me." Cerebras launched its shares on Thursday, marking the largest IPO of the year, setting the price at $185 prior to opening at $350. The stock concluded its first day at $311, leading to a market capitalization of around $95 billion. At one point during the trading day, shares reached $386, reflecting the intense excitement surrounding the company. Founded in 2015, Cerebras has developed what it claims is the largest commercial chip ever created for the computing industry. This innovative processor is constructed from an entire silicon wafer and is tailored for artificial intelligence workloads. According to Cerebras’ IPO prospectus, its processors can operate up to 15 times faster than leading GPU-based alternatives for certain tasks, and over 10 times faster in specific AI training scenarios. Cramer acknowledged the potential for future growth, highlighting several strategic partnerships that Cerebras has forged. Notably, earlier this year, the company entered a $20 billion multi-year agreement with OpenAI to deliver 750 megawatts of computing capacity, while Amazon Web Services recently decided to incorporate Cerebras chips alongside its own Trainium processors. Both Amazon and OpenAI hold warrants to buy shares of Cerebras. Cerebras has also reported impressive revenue growth, generating $510 million last year, a 76% increase from the previous year, with sales projections showing more than tripling in both 2023 and 2024. Although the company is still operating at a loss, Cramer noted that its rapid growth and absence of debt are positive indicators. However, he warned investors to remain vigilant about the risks, particularly regarding the company's valuation. Cramer pointed out that at its Thursday peak, Cerebras was trading at approximately 187 times last year's sales, in stark contrast to Nvidia's 26 times, AMD's 21 times, and Broadcom's 33 times. He concluded, "Investing at this valuation means you're betting on Cerebras achieving significantly higher revenue growth in the coming years. While that could be feasible given their groundbreaking technology, it's certainly a leap of faith."