Cerebras Systems (CBRS.US), a company positioning itself as an alternative to NVIDIA, saw its shares tumble 16% in after-hours trading on Wednesday following the release of second-quarter earnings that fell short of analyst expectations.

Data from the period shows revenue rose 74% year-over-year to $180.1 million, missing the analyst consensus of $194 million. The company reported a loss per share of $2.98, significantly worse than the anticipated loss of $0.17 per share.

Breaking down the results, hardware revenue declined 23% from the same quarter last year to $54.1 million, highlighting the ongoing commercialization challenges faced by this startup that employs a distinctive chip design approach. However, cloud and other services revenue reached a record high of $126 million, surging 281% year-over-year. Core gross margin for the quarter came in at 41%, an improvement of approximately 940 basis points compared to the prior year period.

Since its initial public offering in May, Cerebras shares have gained 42%. The company has marketed itself as a competitor to NVIDIA in the AI chip space, but its largest revenue stream is now cloud computing services.

Key factors behind the hardware decline

CEO Andrew Feldman attributed the hardware revenue drop to the timing of order deliveries and revenue recognition. "The hardware business will show volatility due to the nature of the industry," he stated, adding that some customers are not yet ready to provide the data center space required to accommodate new computing systems.

In contrast, other chip and hardware companies posted strong growth in the most recent quarter. Advanced Micro Devices saw sales jump 50%, while Intel achieved a 25% increase. Cerebras, by comparison, remains in the early stages of customer acquisition and technology deployment, resulting in lower predictability for hardware revenue.

Feldman emphasized that the company remains committed to selling both hardware systems and data center services.

Outlook and guidance

Looking ahead, Cerebras expects third-quarter revenue of approximately $215 million, above the analyst average estimate of $212 million. The company forecasts core gross margin between 38% and 40%, also exceeding the consensus expectation of 36%.

For the full year, management raised its revenue guidance to a range of $880 million to $890 million, up from the previous forecast of $855 million to $865 million. Analysts were expecting $867.6 million. The company also projects full-year core gross margin between 41% and 43%.

Cerebras core technology differentiator lies in its unique high-end processor design philosophy, which uses silicon typically used for multiple components to create a single large chip. The company has built an extensive data center network and offers computing power leasing services, initially intended to validate its technology. The current strong demand for AI computing power has turned this leasing service into a significant growth engine for the company.