Cerebras Opened at $350 -- Nearly Double Its IPO Price -- Then Pulled Back 20% the Next Day. Is Cerebras Stock a Buy or a Trap?

For investors looking for ways to invest in semiconductor stocks outside of the usual suspects, last month offered an opportunity with the Cerebras Systems (CBRS 6.68%) initial public offering (IPO). With its giant chips, it's taking a differentiated approach from traditional semiconductor companies, like Nvidia. Its IPO was priced at $185, with shares opening to the public on May 14 at $350. Shares fell 20% by the next day, which isn't surprising given the momentum trap associated with IPO investing. The risks of chasing IPO excitement IPOs are enticing because they feel like a ground-floor opportunity, so it's easy to be lured in by the excitement. Cerebras specifically generated a lot of interest because it is an artificial intelligence (AI) play taking a different approach to chipmaking, as mentioned earlier. Instead of relying on clusters of smaller semiconductors, Cerebras makes giant chips that are known for their speed. "For many workloads, Cerebras is up to 15 times faster than leading GPU-based solutions as benchmarked on leading open-source models," the company said in its IPO filing. Today's Change(-6.68%) $-14.39Current Price$201.01 Its approach won it a multiyear contract with OpenAI valued at $20 billion, and has led to partnerships with Amazon Web Services and Meta Platforms. That approach is also driving rapid revenue growth, which has skyrocketed from more than $24 million in 2022 to $510 million in 2025. Adding to the excitement is when a company prices above its IPO range, indicating heavy demand and making retail investors feel they were buying into positive momentum. That's what happened with Cerebras: It priced its IPO in a range between $115 and $125 on May 4, bumped that up to a range of $150 to $160, and ultimately exceeded expectations further by finalizing the IPO pricing at $185 per share. Put all that together, and investors can feel pressure to buy shares, not wanting to risk missing out on what could potentially be the next big thing. But when an investor doesn't know much about a company and its associated risks, they can also be susceptible to selling when the excitement fades. Image source: Getty Images. That potential scenario may be playing out for some right now, with the stock price facing a continued sell-off. On June 5, shares closed at $201, a loss of more than 42% from the May 14 opening price of $350. Is this a buy-the-dip opportunity? There's long-term potential here, but there's also no need to rush out and buy shares. Cerebras currently depends on a limited customer base for a large chunk of its revenue, has a history of losses, and still needs to invest heavily to grow the company. This is a stock I'd be comfortable watching from the sidelines, monitoring its progress over the next few quarters.Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.