Since the close of trading last Friday, shares of the artificial intelligence data center company Nebius Group (NBIS 5.96%) are trading over 21% lower as of 11:30 a.m. ET on Nov. 14. The company reported its third-quarter earnings results earlier this week.
New deal with Meta
In the third quarter of the year, Nebius generated revenue of roughly $146 million, up 355% year over year. However, adjusted net losses rose 154% year over year to over $100 million. Nebius' strong revenue growth also missed Wall Street forecasts of roughly $155 million.
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Along with the results, Nebius announced a new deal with Meta Platforms valued at roughly $3 billion over the next five years. It's the second major hyperscaler that Nebius has forged a deal with. The company also said it expects to grow its total contracted power to over 2.5 gigawatts by the end of 2026. Nebius also expects to achieve an annualized revenue run rate between $7 billion and $9 billion by the end of 2026.
NASDAQ: NBIS
Key Data Points
On the company's earnings call, management said that Nebius sold out all its capacity at its data centers. That means that the company doesn't have enough resources, such as power, to meet demand.
The AI trade is cooling
Whether due to high valuations or issues like available capacity, the AI trade has cooled this week and spared no one, which explains why Nebius' stock has performed poorly.
I'm not too enthusiastic about AI stocks right now, but Nebius is one I own. The company is seeing strong demand and is expected to bring more capacity online next year. Furthermore, I like how Nebius provides clients with developer tools, and the company owns other, smaller businesses that have promise. At a $21 billion market cap, the stock trades at roughly 3 times the low end of management's 2026 annualized revenue run rate guidance.
Investors should understand, however, that the stock is going to move with the ebbs and flows of the broader AI sector, so the journey may not always be smooth or linear.
