When it comes to data center stocks, you may be more familiar with the likes of Vertiv or CoreWeave. Indeed, both of those companies are heavily plugged into the world of artificial intelligence (AI) infrastructure.
However, one of my top stock picks for 2025 is an under-the-radar data center player called Nebius Group (NBIS +6.39%).
If you're unfamiliar with Nebius, rest easy. With the support of Nvidia and billionaire investor and Amazon founder Jeff Bezos, Nebius has a lot going for it. With earnings right around the corner on May 20, now may be the time to pounce on this emerging AI star.
NASDAQ: NBIS
Key Data Points
What is Nebius Group?
Nebius is actually a spinoff from a Russian internet conglomerate called Yandex. Following Yandex's divestiture of the Nebius asset, the company listed on the Nasdaq stock exchange and subsequently raised $700 million through a private placement in which Nvidia participated.
Nebius is involved with several different businesses. While its primary focus is outfitting data centers with the latest GPU architecture, the company also operates an AI services business called Toloka -- which recently raised funding from Bezos Expeditions.
Image source: Getty Images.
Why the stock could go parabolic
Back in February, Nebius reported financial results for the fourth quarter and full calendar year 2024. During the fourth quarter, the company generated $37.9 million in revenue -- up 466% year over year. The AI infrastructure represented over half of this revenue -- growing by more than 600% annually.
While these figures are encouraging, I think the Nebius rocket ship hasn't even taken off yet. Management told investors that annual recurring revenue (ARR) reached $90 million in December. If that figure is uninspiring, don't worry.
Per the company's guidance, ARR by the end of the first quarter is expected to be "at least $220 million" -- more than double December's ARR. Moreover, management is forecasting ARR by year-end to be in the range of $750 million to $1 billion.
But how exactly is the company going to reach these targets and scale by this magnitude? Well, consider the fact that Nebius is heavily involved in the rollout of Nvidia's latest GPU architecture, dubbed Blackwell, across Europe and the U.S.
Furthermore, cloud hyperscalers Microsoft, Alphabet, and Amazon, as well as Meta Platforms, are collectively going to spend upward of $300 billion on capital expenditures (capex) just this year. From a macro perspective, rising AI infrastructure is a positive tailwind for Nebius and has me confident in the company's ability to succeed in the long run.
Is Nebius stock a buy right now?
While Nebius stock is trading below prior highs, recent trends suggest that shares are currently experiencing some momentum. Over the last few days, the capital markets have been roaring -- thanks in large part to positive reactions surrounding new tariff agreements between the U.S. and China. I think Nebius has gotten caught up in broader buying, making right now a little bit of dicey opportunity.
To me, the most important thing to be on the lookout for during the Q1 earnings call next week will whether or not Nebius reaches or exceeds its ARR goal of $220 million. And going off of that, it will be equally important to listen to management's forecasts for the remainder of the year.
While I am optimistic that Nebius will produce strong results in Q1, I tend to shy away from investing in momentum stocks. As a long-term investor, I understand that there will be more chances to buy stocks at more reasonable valuations.
For these reasons, I think the most prudent strategy will be to dial into the earnings call next week and digest management's comments while assessing the company's financial profile. While the stock could experience a parabolic rise on the backbone of a positive earnings report, my hunch is that these gains will be fleeting -- ultimately providing investors with more optimal entry points to initiate a position.
