Nebius (NBIS +7.50%) is a popular play on the near-insatiable demand for artificial intelligence (AI) functionalities. The company operates a network of data centers specifically designed for, and operating in support of, AI technology.
This has made its stock quite a hot item for investors looking for a way to buy into the bright future of AI. The result is that it's become rather expensive in both price and valuation terms. Perhaps even at those lofty levels it's a buy, however. Let's explore.
Immediate popularity
In its current corporate form, Nebius arrived on the stock market last October. Even in its brief life it's been a serious gainer; over the past six months a $10,000 outlay on the stock would have quadrupled and then some to $43,590 as of this writing.
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Business is snowballing. In its second quarter, Nebius managed to grow revenue by a dizzying 625% year over year to more than $105 million. Under non-GAAP (adjusted) standards the company was deep in the red, however, with a net loss that deepened considerably (to more than $91 million from the year-ago deficit of under $62 million).
Of those two dynamics, I'd be more encouraged by the revenue rise than discouraged by the heavier crimson ink. Nebius is aggressively building out its capacity, aiming to increase it to 1 gigawatt next year. It has a sizable war chest with which to do this: its cash and equivalents approached $1.7 billion at the end of June.
NASDAQ: NBIS
Key Data Points
Ultra-rich valuations
Given that surge in popularity, though, anyone bullish on Nebius at its current price has to believe in strong growth for years, at least. The stock currently trades at a trailing price-to-sales ratio of almost 100, which is expensive by any standard. Ditto for its price-to-book ratio of over 7.
I think Nebius is well positioned to be a real powerhouse in the AI data center market. It isn't the only game in town, however, and its shares look prohibitively expensive. I'd stand on the sidelines with Nebius stock for now.
