Applied Digital (APLD +0.10%) and Nebius (NBIS +7.95%) represent two distinct investment options in the rapidly growing artificial intelligence (AI) market. Applied Digital builds data center campuses for cloud, AI, and high-performance computing (HPC) companies. Nebius provides cloud-based AI infrastructure services for a wide range of industries.
Both stocks have more than tripled over the past 12 months. Let's review their business models, growth rates, and valuations to determine if either of these hot AI plays is still worth buying.
Image source: Getty Images.
Applied Digital's business is still evolving
Applied Digital initially targeted Bitcoin miners and other blockchain companies, but it pivoted toward the cloud, AI, and HPC markets in 2022. It builds data centers, powers them up, and leases that space to companies that install their own servers. That core business model makes it more of a real estate company than a tech one.
NASDAQ: APLD
Key Data Points
In 2023, Applied Digital launched a new subsidiary, Sai Computing, to provide its own cloud-based AI infrastructure services powered by Nvidia's high-end GPUs. That business grew rapidly, but it was unprofitable and competed against some of its own data center hosting clients -- including Amazon and Microsoft. It also contradicted its original plan to transform into a data center real estate investment trust (REIT), similar to Digital Realty Trust and Equinix. That's why Applied Digital will spin off Sai's cloud computing business and merge it with EKSO Bionics Holdings to create a new company called ChronoScale in the first half of this year.
Applied Digital's spin-off of Sai's cloud business will throttle its near-term growth, but its data center hosting business has already secured $16 billion in lease payments for the next 15 years. Most of those payments will come from CoreWeave (CRWV +1.41%), a rapidly growing AI infrastructure services company. To support that growing demand, it aims to more than double the capacity of its Polaris Forge 1 campus over the next few years. It also plans to eventually become a REIT, which distributes most of its pre-tax income to investors via dividends; however, its ongoing losses are likely to prevent it from making that leap anytime soon.
For fiscal 2026 (which will end next May, possibly before the ChronoScale spin-off concludes), analysts expect its revenue to rise 38% to $297 million as it narrows its net loss to $91 million. With an enterprise value of $8 billion, it appears expensive at 27 times this year's sales. However, it might actually be reasonably valued if it eventually generates more than $1 billion in annual revenue from its long-term leases.
Nebius' rebooted business is impressing the bulls
Nebius was previously known as Yandex, which owned Russia's leading search engine and a wide range of portals, mobile apps, and cloud-based services. The sanctions against Russia forced it to suspend its shares in 2022, so it relocated its business to the Netherlands, spun off its Russian assets, and rebranded itself as Nebius -- a provider of cloud-based AI infrastructure services. As Nebius, it installs powerful AI servers in its own data centers and provides that computing power to companies that prefer not to install their own on-site servers. All of its first-party and shared data centers are in the U.S. and Europe.
NASDAQ: NBIS
Key Data Points
Unlike CoreWeave, which owns more data centers and primarily utilizes its cloud-based GPUs to process GPU-intensive machine learning and AI tasks, Nebius promotes itself as a "full stack" AI infrastructure company that integrates managed software services into its customized AI solutions for the data training, edtech, automation, and robotics markets.
Nebius has already secured big AI infrastructure contracts from tech giants like Microsoft and Meta Platforms, and it expects its monthly revenue -- when multiplied by 12 -- to reach $7 billion to $9 billion by the end of this year. That doesn't mean it will generate that much annual revenue in 2026, but it suggests it could hit that goal in 2027.
For 2026, analysts expect Nebius' revenue to surge 521% to $3.45 billion. For 2027, they expect its revenue to soar another 125% to $7.8 billion.
It will remain unprofitable as it builds and leases more data centers, but economies of scale should eventually kick in and dilute its costs. With an enterprise value of $24 billion, Nebius still seems reasonably valued at seven times this year's sales. The near-term concerns about its spending and persistent losses might be compressing its valuations.
The better buy: Nebius
Both of these companies can continue to grow as the AI market expands. However, Nebius's stronger growth rates, lower valuation, and clearer plans for the future make it a better buy than Applied Digital right now. Applied Digital needs to carefully balance its spin-off of ChronoScale, the expansion of its Polaris 1 campus, and its rising costs to prove its business is sustainable.
