Nvidia and Palantir Technologies have been the undeniable stars of the artificial intelligence (AI) boom thus far. Since the beginning of 2023, Nvidia is up 1,050%, while Palantir has jumped 2,360%, and was even higher before a recent pullback. Both stocks have also performed well this year. Nvidia is up 24%, while Palantir has gained 108%.
But there are a pair of lesser-known AI stocks that recently went public and have outperformed both those companies this year. They are CoreWeave (CRWV -2.66%) and Nebius (NBIS -1.59%), two AI cloud infrastructure companies that have soared since their debuts. CoreWeave has jumped 144% from its IPO in late March.
Meanwhile, Nebius is up 377% since it resumed trading last October, evolving from the Russian tech company Yandex after that company sold off its Russian assets. Yandex was delisted from the Nasdaq in 2022, following Russia's invasion of Ukraine. The disposal of Russian assets allowed it to rejoin the Nasdaq.
Let's see what potential both of these young stocks could have from here.
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Big growth, but big risks
CoreWeave and Nebius both provide a new kind of service. They are AI cloud infrastructure companies that provide data centers and computing power for hyperscalers and AI start-ups to run demanding AI workloads.
The two companies overall have more similarities than differences. CoreWeave is based in the U.S., while Nebius is based in Amsterdam, Netherlands. While CoreWeave evolved out of a crypto company, Nebius was born out of Yandex. CoreWeave is the larger of the two, but Nebius provides a broader suite of software and services. CoreWeave is better known for performance hardware, handling large AI workloads.
Both companies are growing rapidly, demonstrating the massive opportunity in the space. CoreWeave's revenue jumped 206% in the second quarter to $1.21 billion, while Nebius posted 625% revenue growth in its second quarter to $105.1 million.
However, the two companies are also deeply unprofitable at the moment, reflecting both the size of the opportunity in front of them as they invest in the infrastructure necessary to grow and provide services, but also the risk in the business. Demand for AI infrastructure is still brand new, essentially. There are already concerns about a bubble in AI, and there are risks of obsolescence as the chips they're buying now will lose value over time.
Microsoft makes a splash
Microsoft has been the biggest investor in the AI cloud infrastructure space, and it just made a monster deal with Nebius, showing its intentions and the huge amounts of capital flowing into AI cloud infrastructure. Nebius just announced a multi-year agreement with Microsoft to deploy GPU infrastructure at its new data center in New Jersey, with a total contract value of $17.4 billion. Microsoft also has the option to purchase $2 billion more in services or capacity.
Nebius stock soared on the news, jumping more than 40%, and the tailwinds were strong enough that it even lifted CoreWeave up more than 5%. Though you might think CoreWeave would be a loser on the news, given that Nebius is a competitor, investors instead see it as a win for the sector, as it validates demand for AI infrastructure services.
Meanwhile, CoreWeave still has plenty of backlog to work its way through, at $30.1 billion as of the end of the second quarter.
Time to buy CoreWeave and Nebius?
After their surges this year, CoreWeave and Nebius are high-risk stocks. CoreWeave, after peaking in June, fell by more than 50% as investors are still struggling to appropriately value both it and Nebius. CoreWeave currently trades at price-to-sales ratio of 13, which seems reasonable, given its high growth and high losses, while Nebius, which is much smaller, trades at a lofty P/S ratio of 61.
These stocks have high upside, but also a lot of downside risk as well. For AI investors who have already made a tidy profit in Nvidia and Palantir, diversifying part of that windfall into CoreWeave and Nebius makes sense. If AI maintains its pace of expansion, those two stocks are likely to continue outperforming Nvidia and Palantir in the coming years.
