CBRS to $209? Paul Meeks Explains Street Low Price Target

**SPEAKER_1** (0:00)
And preview today's earnings report, due out after the bell. Our tech spotlight here, and Paul Meeks, head of technology research at Freedom Capital Markets is joining me now. Thank you so much for being with us. We're seeing the stock jumping. We remember the IPO in May at 185 It's had a lot of volatility since then. Some of your thoughts and what you're watching for specifically for the earnings report due out today.

**Paul Meeks** (0:24)
Sure, I'm a little bit worried, frankly, about this move that the stock has had, particularly today leading into the report.
We're expecting 188 million in revenue. Street's at 194 That's probably no surprise, no magic there. What has me a bit befuddled is we expect this company to lose dough, but the street has an adjusted EBITDA dollar loss of about 20 million, and we are at 73 million. You may recall that this is their second quarter since their IPO. After their first quarter report, which literally was only weeks after their IPO, they really surprised on that profit actually lost number, and the stock was whacked. I don't know if they're out of those woods yet.
With this stock rallying so hard, since its trough that it hit in June, then again in July, I think I would stay away. I definitely would not buy this ahead of earnings. I hope I'm wrong. I'm happy to be objective. But right now, I have the lowest price target on the street of 209, and you see where the stock is now, $263 a share. I just think it's risky and overvalued.

**SPEAKER_1** (1:42)
Yeah, I noticed you even said you have them in the penalty box and that they could even test some lower numbers, well below 200 even. Is that right?

**Paul Meeks** (1:51)
That's right. I actually was tempted, though I didn't act quickly enough, to upgrade the stock just basically on price because it did get under 170, and this is less than a month ago.
So I'll consider that because even in all the reports I've written, whether it be in my initiation of coverage or any notes since, I am a big fan of the technology. I actually think in the semiconductor industry, what they have done is maybe the most innovative we've seen in a long, long time. However, I worry about revenue, and I worry about those profits that result from the revenues. I just think it might take longer to work out than people expect.

**SPEAKER_1** (2:34)
The OpenAI, this is the big part of the story. The OpenAI contracts and partnerships, they need to really push forward with that, more of that. How so?

**Paul Meeks** (2:45)
So right now, they have two major partners that hopefully generate revenues.
The big focus of the next year or more is going to be OpenAI, ramping that capacity, then followed by a different relationship they have with Amazon Web Services. But you think about it, since their IPO, doing business with OpenAI has gone from being a real credit to folks to a real deficit. Right now, there's some concern about OpenAI, losing some business momentum to Anthropic, also pushing out their IPO from 26 into 27 My understanding is their IPO might come late in 27, and they need that equity to pay the bills, including the bill that they have to pay for Cerebras capacity.

**SPEAKER_1** (3:33)
As they're somewhat dependent on this OpenAI contract, as you've noted, how about the profitability picture? It's my understanding that doesn't look like it's going to be profitable until next year. Is that problematic or is that in line with what you were thinking?

**Paul Meeks** (3:51)
It's in line with what I'm thinking, but the magnitude of losses, at least in the near term, we are forecasting much steeper losses. We'll see what happens. You always have to have companies that over time get to non-gap profits, at least generate some cash flow so we all feel better about these things. But yes, I don't expect them to be profitable for, I think even next year might be a stretch.

**SPEAKER_1** (4:17)
Yeah, and you noted some partnerships that you do like with the company has had with AMD, for example, and also CrowdStrike and Flex as well. Those are some of the partnerships that you like. I will ask this, so when we think about what's going on, I was reading that NVIDIA won the first round all across the board when it came to AI workloads and data center build outs and was really interested in the training for what goes on in AI and the chips. But now we've had a shift to inference and that has brought an opportunity to other names. Does this bring an opportunity to Cerebras or other names that you care to share, non NVIDIA chips?