Nebius Group (NBIS +7.65%) stock has been white-hot this year. But in this "what have you done for me lately?" world, there are questions about whether it rose too high, too fast.
While Nebius still is showing an extraordinary year-to-date gain of more than 300%, some of the air has come out of the stock as of late. It's down nearly 20% from the all-time high it hit earlier this month. Meanwhile, there are fears among some in the market that the artificial intelligence (AI) trend has created a bubble that's getting ready to pop.
Is Nebius still a buy, or is this the time to start taking profits?
Image source: Getty Images.
What is Nebius Group?
Nebius Group has been around for a while, but not in its current form. The company used to be part of the Dutch holding company Yandex N.V., which included a Russian internet company that was also named Yandex. That holding company traded on the Nasdaq exchange until Russian companies were hit with sanctions in retaliation for Russia's invasion of Ukraine.
Yandex got rid of its Russian assets and renamed itself Nebius. Under the new configuration, it's a cloud infrastructure provider with a specialty in data centers designed to power AI technology. That's an important service considering how expensive it is for companies to stand up their own data centers powered by the latest graphics processing units (GPUs) and central processing units (CPUs).
Nebius has thousands of Nvidia GPUs operating a full-stack AI cloud platform, meaning it includes hardware like chips and servers, infrastructure like storage and model training environments, and AI-powered applications like chatbots and generative AI systems. The company this week announced the launch of a new data center in Israel with servers that include Nvidia's top-of-the-line Blackwell chips.
NASDAQ: NBIS
Key Data Points
It also has a massive agreement with Microsoft under which Nebius' data center in Vineland, New Jersey, will provide dedicated GPU capacity to Microsoft's Azure. The five-year agreement is valued at up to $19.4 billion. That will provide a huge revenue stream to Nebius as it expands its footprint. Nebius stock jumped by 200% after the Microsoft deal was made public.
A look at Nebius stock
Nebius has lofty goals -- it wants to secure 1 gigawatt worth of cloud computing capacity by 2026. That's the equivalent of the amount of electricity generated by a nuclear reactor.Currently, its data centers use roughly 220 megawatts of power, and new projects are in the works in New Jersey, the U.K., Israel, and Finland.
But building out that much cloud infrastructure takes a lot of capital investment. That's why Nebius announced a new fundraising round that includes a private offering of $2 billion in convertible senior notes, as well as a public offering of $1 billion in common stock. And those funding moves come on top an offering of $1 billion in senior convertible notes that it completed in June.
That's a lot of capital to raise, but management says the Microsoft deal makes it possible.
"We believe this will enable us to aggressively grow our core business in 2026 and beyond as we aim to scale our global data center portfolio, including through new greenfield sites, and the expansion of our customer base, from AI native tech start-ups to larger enterprises," the company said in a statement.
The company posted a net loss of $91.5 million in the second quarter as its spending accelerated. But it's also important to recognize that its revenue for the quarter was $105.1 million, up 625% from a year earlier. It also increased its annual run rate revenue forecast for the end of this year from its prior range of $750 million to $1 billion to a range of $900 million to $1.1 billion.
"We are in the midst of a once-in-a-generation opportunity," CEO Arkady Volozh said in a letter to shareholders. "Demand for AI infrastructure -- compute, software and services -- is only going to get stronger."
The bottom line
Many AI stocks have slipped lately, and shares of unprofitable companies like Nebius naturally are going to be more volatile, particularly when there's talk of an AI bubble. So investors should understand there are risks to buying this stock.
But the company is making massive strides. The Microsoft deal is a game changer, and Nebius is providing a service that is in heavy demand. According to Yahoo! Finance, the analysts following Nebius have a consensus 12-month price target of $156.40 on the stock. That's about 40% higher than it trades now.
While Nebius isn't an appropriate pick for every investor, those who have strong tolerances for risk should feel comfortable adding it to their portfolios.
