Could Nebius Group Be a Sleeper Growth Pick?

Globe and Mail

7 hours ago

When it comes to investing in artificial intelligence (AI) stocks, some of the most common opportunities reside in software platforms and semiconductors. But one pocket of the AI realm that is steadily starting to gain some traction is infrastructure.
Think of it this way: When cloud hyperscalers such as Amazon, Microsoft, or Alphabet each say they are spending tens of billions of dollars on AI capital expenditures (capex), only some of this spend is allocated toward chipsets and network equipment supplied by the likes of Nvidia, Advanced Micro Devices, or Broadcom.
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In the background, there are companies that are actually building the data centers and graphics processing unit (GPU) clusters in which they reside. This is where Nebius Group (NASDAQ: NBIS) comes into play.
Let's explore what Nebius does and how the company is riding the tailwinds of rising AI infrastructure investment. Could Nebius be an under-the-radar opportunity for growth investors right now?
What does Nebius do?
Nebius operates across four segments. The company's core business is an infrastructure-as-a-service (IaaS) business -- essentially offering customers the ability to access high-performance compute architecture via the cloud.
In addition, Nebius has three subsidiaries: Avride, Toloka, and TripleTen. Avride is an emerging force in the autonomous vehicle industry, and recently struck a partnership with global car manufacturer Hyundai. Toloka serves as a data partner for large language models (LLMs) and AI developers including Anthropic, Microsoft, and Shopify. TripleTen is a software platform marketed toward the education industry, which is another budding area where AI could lead to some transformative changes.
AI infrastructure is booming
While Nebius is a diversified business and positioned to benefit from AI in many different ways, most investors tend to focus on the company's infrastructure segment. The company works closely with Nvidia, allowing its customers to access a series of different GPU architectures.
At the end of the first quarter, Nebius' IaaS business was operating at a $249 million annual recurring revenue (ARR) run rate. While this might not seem like much at first, consider this: Management is guiding toward an ARR run rate between $750 million and $1 billion by year-end, as well as positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
How is Nebius going to increase its core infrastructure segment by nearly fourfold over the next six months?
For starters, the company's data center footprint is expanding rapidly. In addition to existing projects in France and Finland, the company is also building out new infrastructure in Iceland, Kansas City, and New Jersey.
Moreover, these new data centers will be equipped with the most in-demand GPUs on the market -- of course, I'm talking about Nvidia Blackwell, Grace Blackwell, and Blackwell Ultra architectures.
When you consider that major hyperscalers are on pace to spend more than $300 billion on AI capex just this year, coupled with industry forecasts calling for $6.7 trillion of infrastructure spend by next decade, Nebius appears to have strong secular tailwinds fueling its long-run growth narrative.
Is Nebius stock a good buy right now?
When it comes to investing in Nebius, valuation is a little bit challenging, given the company's corporate history. Toward the end of 2024, Nebius was actually spun out of a Russian internet conglomerate called Yandex. As part of the deal structure, Nebius become an independent entity and listed on the Nasdaq exchange.
Given the limited financial picture available to investors, I don't find traditional valuation metrics such as price-to-sales (P/S) or other ratios entirely helpful when looking at Nebius. Rather, I'd like to look at the company relative to some peers.
NBIS Market Cap data by YCharts
One of the closest comparable public companies to Nebius is AI cloud infrastructure provider CoreWeave, which went public earlier this year. As the graph makes clear, not only does CoreWeave boast a much larger market capitalization than Nebius, but its value is actually expanding.
Granted, there are reasons for this. CoreWeave is a much larger company than Nebius on the sales front, and the company continues to strike lucrative partnerships with AI's biggest developers.
But even so, it's hard to deny CoreWeave's valuation momentum right now compared to the mundane price action in Nebius. To me, Nebius is flying under the radar -- completely overshadowed by CoreWeave's popularity.
I see robust growth ahead for Nebius both in the short and long run, and I think the company's relationships with Nvidia and others in the AI landscape could lead to larger, more strategic deals over time.
For these reasons, I would encourage investors looking for new growth opportunities in the AI space to consider a position in the infrastructure services pocket -- and particularly in Nebius.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, Nvidia, and Shopify. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, Nebius Group, Nvidia, and Shopify. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.