Cerebras Systems (CBRS) experienced a sharp pre-market plunge of 11.04% on Wednesday, as investors reacted negatively to the company's first quarterly earnings report as a public entity.

The AI chipmaker reported first-quarter results that surpassed analyst expectations, with revenue soaring 94% year-over-year to $193.4 million and an adjusted net loss narrowing significantly. However, the market's focus shifted to the company's forward-looking guidance, which raised concerns about its near-term profitability.

The primary driver of the sell-off was Cerebras's projection for its core gross margin, which it expects to be 36% to 38% for the second quarter and 38% to 41% for the full year. This guidance falls notably below the 47% margin achieved in the first quarter and is far lower than the profitability levels of established rivals like Nvidia. Furthermore, the company indicated that operating margins would remain negative through 2026. Executives cited data center capacity constraints, which are forcing Cerebras to temporarily rent back its own systems from customers—a move that will depress gross margins by 10 to 15 percentage points this year.

Despite announcing a multi-year deal with OpenAI valued at over $20 billion and showcasing robust revenue growth, the pre-market reaction highlights investor skepticism about the commercial profitability of Cerebras's AI chip business model in the face of intense competition and high infrastructure costs.