The artificial intelligence (AI) sector has undoubtedly been the hottest sector in the market over the past few years, playing a major role in driving the benchmark S&P 500 index to new all-time highs all year long.
One AI stock that has done extremely well is Nebius Group (NBIS -1.73%), which owns and operates data centers specifically tailored for running large language models (LLM) that power AI applications. Nebius' stock joined the Nasdaq in October last year and is up roughly 465% since. After such a big run, is Nebius still a buy?
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Business is really starting to hum
Nebius has a complex history. The assets that comprise the company today used to be owned by the Russian search giant Yandex, but when Russia invaded Ukraine, the U.S. placed a lot of sanctions and regulatory actions that required Russian companies to delist from U.S. exchanges. In 2024, a group of assets was split off from Yandex to form Nebius in a $5.4 billion deal. These assets included the core cloud data center business, data labeling, self-driving vehicles, and an education technology business.
Nebius, which is now based in Amsterdam, then rejoined the Nasdaq last October and raised a $700 million round of financing led by several major venture capital firms and Nvidia, which is a key partner of the firm. Nebius has six locations with data center space, including its own data center in Finland, a new facility in New Jersey that will soon be live, and colocations in Missouri, the United Kingdom, Iceland, and France. These data centers are equipped with clusters of the latest graphics processing units (GPUs) from Nvidia, which are then available to companies looking to run AI applications.
While there are competitors in this space, Nebius also offers tools that help developers build AI models and that better train and enhance large language models. Nebius' balance sheet is also strong with moderate levels of debt and the company uses a more conservative depreciation length of four years on its GPUs.
In the second quarter of 2025, Nebius reported $105 million of revenue, up 625% year over year, although the company's adjusted net loss climbed to $91.5 million, up from an adjusted loss of $61.5 million in the second quarter of 2024. Management also raised the company's guidance to an annual revenue run-rate of $900 million to $1.1 billion by the end of this year.
However, everything changed recently when Nebius announced a multi-year deal with Microsoft, which will likely start in 2026 and last through 2031. The deal is worth $17.4 billion, but has the potential to be worth as much as $19.4 billion. On the news, Nebius' stock soared 50%. Furthermore, CEO Arkady Volozh said in a statement that he thinks there are more deals to come.
Is the stock a buy?
Assuming Nebius' deal with Microsoft is for six years for $17.4 billion implies annual revenue of $2.9 billion, which would bring the company close to a $4 billion annual run rate when you add in Nebius' initial expected revenue run rate by year end. With the company trading at a roughly $24.5 billion market cap, that means the stock trades at roughly 6 times revenue. That's not necessarily cheap, but it's by no means expensive among high-flying AI stocks.
It's also good news to see Volozh hinting at other deals, and Nebius also owns other assets that could eventually be of value. I also like the fact that Nebius has a strong balance sheet, and seems to be conservative in its depreciation of GPUs. For all of these reasons, I think the stock is a buy. However, after such a big run, I would recommend dollar-cost averaging.
