Nvidia (NVDA +0.87%) has proven itself to be the bellwether of the artificial intelligence (AI) industry. The company is the leading AI chip designer and has been among the first to speak of what's next in the field -- from sovereign AI to humanoid robots.
Meanwhile, Nvidia also is known for top performance today when it comes to earnings and the stock. Both have soared as investors are confident that this market leader not only is seeing high demand for its products and services now, but this is very likely to continue over time.
So you might expect this market giant to be the best-performing AI stock this year. But that actually isn't the case. Nvidia has advanced in the double-digits -- rising about 27% -- but it isn't the stock that's brought investors the most growth in recent times. Instead, there's another AI stock that's quietly outperformed Nvidia all year.
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A player in the neocloud market
When we think of AI, we generally think of chips first, the graphics processing units (GPUs) that power essential AI tasks like the training and inferencing of models. Nvidia, of course, designs those, but in many cases, other companies are involved in offering this compute to customers.
One of these is Nebius Group (NBIS +6.74%), a player in the neocloud market -- these businesses offer customers access to top GPUs in a model known as GPU-as-a-service (GPUaaS).
Nebius and other GPUaaS companies like CoreWeave, another strong performer this year, compete against major cloud service providers like Amazon Web Services and Microsoft Azure, but they differentiate themselves by focusing on AI workloads. The big cloud companies offer a broader panel of options beyond AI.
NASDAQ: NBIS
Key Data Points
This AI specialty means GPUaaS companies can focus specifically on the needs of AI customers, and that's exactly what Nebius has done. The company says one of the reasons it stands out is its architecture is optimized for large-scale AI projects, and customers can effortlessly ramp up their projects or scale them down.
Nebius also has built out its own infrastructure -- designing servers in house, for example -- which gives the company more control over performance and its cost structure. And that also may equal more reliability and lower costs for customers.
A more than 300% increase in revenue
All this clearly has appealed to customers, as we can see in Nebius' latest earnings report. Revenue in the period advanced 385%, and in a letter to shareholders, founder Arkady Volozh was optimistic about the rest of the year. He expects the company to reach a $750 million to $1 billion annual revenue run rate by the end of 2025 -- and in the second half, Volozh predicts Nebius will turn adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) positive.
Investors also may like Nebius' capital position and low level of debt -- and here, it's important to note that though Nebius may be considered a newish company, it actually has deep roots. Volozh originally created it as Yandex in the late 1980s, but in more recent times, the stock was suspended from trading on the Nasdaq as part of sanctions during the early stages of the war in Ukraine. Yandex then sold off Russian assets, reorganized around a GPUaaS business and named itself Nebius, then resumed trading this past October.
Nebius launched with $2.5 billion from its asset sales, then raised $700 million from investors -- though the company may go to the capital markets for financing in the future, it aims to limit dilution for shareholders and reliance on debt. GPUaaS businesses require tremendous investment in order to keep up with customer demand in this fast-moving sector.
Nebius has appealed to investors for its successes in a high-growth market and with its careful manner of funding growth -- if it continues on this path, the stock may march higher, even after recent gains.
Will Nebius continue outperforming?
Will Nebius continue to outperform Nvidia in 2025? It's impossible to predict short-term moves with 100% accuracy, but it is easier for a company with a lower market value -- in this case, Nebius is worth $12.7 billion, while Nvidia is worth $4.1 trillion -- to rise more quickly. Of course, Nebius also comes with more risk, as it isn't yet profitable and does face a significant amount of competition, and any hurdle could weigh heavily on stock performance.
But Nebius' business has been successful so far, its growth plan looks logical, and demand for compute power remains high. So if Nebius meets its goals in the coming months, this AI stock could maintain its momentum and even outperform AI star Nvidia for the full year.
