Over the last few years, Meta Platforms (META 0.82%) has quietly solidified its position as a leader in the artificial intelligence (AI) realm through a combination of open-source models and integrating generative AI across its social media platforms.
On one side of the equation, Meta is democratizing AI for developers and enterprises through its Llama model series. On the other side, the company is embedding machine learning into core advertising tools across Facebook, Instagram, and WhatsApp -- enhancing user engagement and improving returns for advertising partners.
This dual-approach is fueling Meta's aggressive AI infrastructure spending, which is projected to reach up to $135 billion this year. Without heavy investment, the company risks falling behind its big tech counterparts in the AI boom.
Let's explore Meta's recent headline-grabbing $27 billion capacity deal. Smart investors should know why this move is justified for Meta, and on a deeper level, understand the data center stock benefiting from such agreements behind the scenes.
Image source: The Motley Fool.
Why did Meta just spend $27 billion on artificial intelligence?
In mid-March, Meta announced a five-year capacity deal with neocloud specialist Nebius Group (NBIS +6.74%).
The deal commits Meta to $12 billion of dedicated capacity across multiple data center sites powered by large-scale deployment of Nvidia's Vera Rubin graphics processing unit (GPU) architecture. In addition, Meta has the option to purchase additional capacity featuring Nebius' upcoming GPU clusters for another $15 billion.
Partnering with Nebius brings significant advantages to Meta. Namely, Meta now has immediate access to scarce GPUs all while avoiding the full capital and time burdens of building every data center design internally.
Working with Nebius allows Meta to diversify its supply chains, navigate around power and chip shortages, and accelerate timelines for training new models and bringing next-generation services into production.
How Nebius is winning in the neocloud era
Neoclouds are specialized AI infrastructure providers that build their own data centers and rent access to high-performance GPUs to developers. In an age where data center power and capacity are becoming as hot a commodity as oil, Nebius has swiftly become a critical supplier to some of AI's most important players.
The company's rise hails from a trifecta of hyperscaler partnerships that provide Nebius with both validation and operational leverage. The new Meta deal joins an existing multi-year, $19.4 billion agreement with Microsoft as well as a $2 billion capital infusion from Nvidia.
NASDAQ: NBIS
Key Data Points
These relationships underscore Nebius' strength in building vertically integrated data centers across the U.S., Europe, and the Middle East. The company's ability to rapidly deploy the most in-demand AI accelerators in the world allows big tech to move full steam ahead as these developers push the frontiers of ever-growing inference workloads.
Investors should care about these partnerships because Nebius' ties to blue-chip AI stocks ultimately creates a virtuous cycle of hyperscale demand, funding, and priority within chip stacks. In essence, Nebius is far more sophisticated than a company leasing GPU capacity. Rather, the company is evolving into an indispensable partner to the very companies redefining the future of technology.
Is Nebius stock a buy?
As of this writing (March 20), Nebius boasts a market capitalization of $28.7 billion. Let's take a look at the company's valuation profile relative to its run-rate annualized recurring revenue (ARR).
Prior to the Meta deal, Nebius' management was guiding for annualized ARR between $7 billion and $9 billion for 2026. This represents 540% growth year over year at the midpoint ARR figure.
Clearly, Meta's new $27 billion contract now renders management's guidance conservative. The new commitment should materially lift the company's revenue trajectory beginning in 2027 -- when the Meta deal is expected to come online.
At today's market value, Nebius trades for roughly 3.6 times its forecasted ARR. However, this figure is actually even lower when accounting for the uplift of future deals such as the Meta contract.
For a hypergrowth AI infrastructure stock with contracted, multi-year revenue visibility from big tech, I think Nebius trades at an attractive valuation. The biggest risks I see with the company are its ability to remain on track constructing new data centers and allocating capital efficiently, as AI infrastructure is largely a capital-intensive industry.
With that said, I would not encourage waiting for a pullback on any potential "bad news." Investors with a long time horizon should consider dollar-cost averaging into Nebius stock over time. This approach allows investors to enjoy upside from the secular tailwinds of accelerating AI infrastructure investment while simultaneously smoothing out any volatility the neocloud space may witness.
In today's era where AI compute remains undersupplied, Nebius' platform and blue-chip relationships make it a compelling buy-and-hold opportunity for growth investors.
