Shares of Cerebras Systems tumbled nearly 20% on Wednesday, despite delivering better-than-expected first-quarter earnings. The company forecast a narrower gross margin in its core business for the year, guiding to between 38% and 41%, down from the 47% reported in Q1.

Cerebras CEO Andrew Feldman told CNBC that investors had misunderstood the guidance, noting that Cerebras will need to rent back some equipment from one of its largest customers. The company decided to make more capacity available sooner by temporarily renting its own systems back from an existing customer while it builds out and deploys its own data center capacity.

According to the earnings report, revenue for the quarter reached $193 million, up 94% year-over-year. Net loss narrowed to $14 million, down from $23.9 million a year earlier. However, this decision is expected to cut into profit margins this year.

The volatility in Cerebras' stock price underscores the complexities of scaling an AI chip business, where maintaining profitability while expanding capacity and meeting customer needs can be at odds.