As was the case with so many other new industries, in artificial intelligence (AI)'s early days, lots of new companies materialized. Each was certain their unique offering would make them the leading name in their sliver of the business.
Also, like so many other new industries, however, it's now clear that not every AI outfit is able to thrive on its own. Some of them are teaming up with others as a means of becoming more competitive. Others are doing so just as a means of survival. Either way, names in this business are being bought. IBM intends to acquire data streaming specialist Confluent, for instance, while Nvidia recently bought workload management outfit SchedMD. Earlier this year, Alphabet announced plans to shell out $32 billion to buy cybersecurity name Wiz, and just a few days ago, Facebook parent Meta Platforms said it had closed on its purchase of AI wearables start-up Limitless.
All of this dealmaking raises the question: What's the next artificial intelligence company to be acquired? It's my view that Nebius Group (NBIS 7.81%) is a strong candidate.
Image source: Getty Images.
What's Nebius?
In simplest terms, Nebius is an artificial intelligence data center owner/operator, offering its infrastructure solutions to clients that can't or just don't want to build a data center of their own.
This description, however, doesn't quite do the company justice. See, Nebius was recently built from the ground up to meet the specific data center needs that only became clear after the industry had matured. For instance, its platform excels at an increasingly important type of machine learning called inference, which allows AI to make predictions using never-before-seen data. The company also offers easy-to-use Kubernetes solutions, allowing an app or workload to perform separately from everything else that might simultaneously be going on within that same data center platform. And, the company makes all of these solutions -- and more -- available in a way that customers of all sizes can affordably access them, always with an option to scale up or scale back this access. In its words, Nebius is "built to democratize AI infrastructure and empower builders everywhere."
NASDAQ: NBIS
Key Data Points
And it's doing exactly that. Despite only being a recently formed offshoot of Russian search engine outfit Yandex, last quarter's top line of $146.1 million is a 355% year-over-year improvement on $32.1 million in revenue reported for the same quarter a year earlier, before the company became the one we know today.
This is still just the beginning, though. In September, Nebius announced it had made a multibillion-dollar deal with Microsoft to provide the software giant with AI infrastructure services from its Vineland, New Jersey, facility. It was arguably the defining moment of the young company's existence.
It's also the crux of the argument for labeling Nebius Group as an acquisition target.
The case for acquisition
Don't read too much into Microsoft's choice. In addition to managing several of its own data centers, when it can't add enough capacity of its own quickly enough to keep up with ever-growing demand, the company also utilizes data centers owned and operated by other third parties, including up-and-coming Iren.
Of all the options Microsoft had at its disposal, though, Nebius is arguably the least proven of them. The software giant chose it anyway, suggesting strong confidence in the young company's ability to deliver as promised. Then last month, Nebius disclosed it had inked a three-year, $5 billion deal with Facebook parent Meta to supply the social networking powerhouse with AI infrastructure, underscoring the company's new status and stature as a key player within the artificial intelligence industry.
To this end, the company believes its total need for electricity will swell from 220 megawatts this year to somewhere between 800 megawatts and 1 gigawatt (1,000 megawatts) next year, although its future projected "contracted" (but not yet utilized) need is expected to reach 2.5 gigawatts by the end of 2026. In more practical terms, Nebius is looking for annualized revenue of between $7 billion and $9 billion by the end of next year, versus an expected top line of about $550 million for 2025.
That may or may not push the company out of the red and into the black. But it doesn't really matter just yet. With a market cap of less than $20 billion and strong growth driven by some of the technology sector's highest-profile names -- companies that can clearly build their own data centers -- outright owning Nebius would be a cost-effective way for any outfit to buy their way into the lucrative AI data center business with an obviously marketable lineup of solutions. The profits would come eventually.
Buyout or not, a juicy growth prospect
Is it a guarantee that Nebius will be acquired in 2026? Certainly not. There are no such guarantees. Plenty of predicted acquisitions never end up taking shape, in fact.
This one feels more likely than the typical prediction of a buyout, though. Nebius' services are clearly seeing demand from companies with plenty of other options. These large customers are even willing to pay something of a markup on these AI infrastructure services ... for now. It shouldn't take too much longer, however, for one of them to recognize that it would be cheaper in the long run to simply outright buy this service provider, or even turn Nebius' data center business into a new profit center.
But even if it never happens, Nebius Group is a juicy growth prospect in its own right.
