Shares of neocloud infrastructure provider Nebius Group (NBIS +0.18%) shot up nearly 19% on July 21 after it emerged that Nvidia has a significant stake in the company.
According to a filing with the U.S. Securities and Exchange Commission (SEC), Nvidia has a 9.3% equity stake in Nebius, which amounts to just over $5 billion as of this writing. It is worth noting that Nvidia announced a $2 billion investment in Nebius in March this year to help the neocloud specialist deploy more than 5 gigawatts (GW) of artificial intelligence (AI) data center capacity by the end of the decade.
That investment has grown substantially. The AI stock has jumped over 67% since Nvidia announced it was backing Nebius on March 11. The good news is that Nebius still has significant upside potential, given the fast-growing AI data center market it serves. Let's see why this Nvidia-backed AI infrastructure specialist is destined to be a long-term winner.
Image source: Getty Images.
Nebius is a critical player in the AI infrastructure ecosystem
Nebius provides dedicated AI data centers to customers looking to run AI workloads in the cloud. More importantly, the company operates an end-to-end AI cloud infrastructure platform by offering software solutions as well, enabling customers to build AI agents, fine-tune models, and develop applications, among other things.
NASDAQ: NBIS
Key Data Points
So, Nebius doesn't just build AI data centers and rent out its compute capacity to customers. It is capitalizing on the growing demand for inference through its Token Factory software solution, which enables customers to scale their models, build agents, and perform other tasks. Nebius management noted on the May earnings call that its Token Factory is experiencing solid traction among customers.
Also, its cloud platform is being used for developing physical AI solutions, which is a fast-growing niche within AI that's expected to grow by more than 100x in revenue between 2026 and 2040, generating $383 billion in revenue at the end of the forecast period.
Meanwhile, the neocloud infrastructure market that Nebius operates in is projected to generate over $53 billion in revenue in 2030, according to Gartner. The company has generated $878 million in revenue over the trailing twelve months, indicating that it has a lot of room to grow over the long run. Moreover, Nebius already has lucrative deals in place with major hyperscalers that should allow it to sustain solid growth levels going forward.
Not surprisingly, analysts are anticipating a significant acceleration in Nebius' top line due to its impressive backlog.
Data by YCharts
The stock is expensive, but it can still double
At 57 times sales, Nebius isn't cheap compared with the tech-focused Nasdaq Composite index's sales multiple of 5.1. However, the chart above indicates that its revenue could increase 7x in just two years, which should help justify its valuation.
However, even if Nebius were to trade in line with the Nasdaq Composite's sales multiple at the end of 2028, its market cap could increase to $110 billion (based on the 2028 revenue estimate of $21.6 billion). That's more than double its current market cap of $48 billion.
So, investors looking to buy a fast-growing infrastructure stock that could double their money in the next three years can consider buying Nebius before it surges higher.
