The demand for artificial intelligence (AI) data centers is exceeding supply, which isn't surprising, as major hyperscalers and AI companies are sitting on massive backlogs that they need to fulfill.
The top four cloud computing companies in the U.S. alone are sitting on a combined backlog worth a whopping $2.3 trillion, according to Bank of America. As a result, these companies are looking to aggressively add more data center capacity to satisfy their enormous backlogs. This is great news for neocloud infrastructure provider Nebius Group (NBIS -0.27%), which builds dedicated AI data centers and rents out capacity to customers.
This AI infrastructure stock popped 34% on Aug. 12, driven by solid Q2 results it released the same day. The company's numbers crushed expectations, and management's comments about AI data center demand made it clear that its red-hot growth is sustainable. Let's take a closer look at Nebius' numbers and check why this AI stock can soar higher following phenomenal gains of 199% in 2026.
Image source: The Motley Fool.
Nebius' red-hot revenue growth and narrowing losses point toward a brighter future
Nebius doesn't just build dedicated AI cloud infrastructure and rents them to customers. It also offers a software stack for training, running inference, and fine-tuning AI models, among other things. This end-to-end business model is working well for the company.
NASDAQ: NBIS
Key Data Points
Nebius reported a 454% year-over-year increase in Q2 revenue to $582 million. The company also reduced its adjusted net loss by 64% to $33.2 million. This impressive performance was driven by the robust demand for Nebius' full-stack AI data center infrastructure. The company noted that its total contract value jumped by 4x year over year in Q2.
Even better, the average contract value (ACV) for each megawatt (MW) of data center capacity that Nebius is now letting out is increasing at a terrific clip. The ACV per megawatt was $12 million last year. However, the number rose to over $20 million in the previous quarter. More importantly, Nebius sees its ACV per MW exceeding $40 million in the current quarter for short-term capacity deals.
This increase in deal size shows just how strong the demand for data center infrastructure is right now. Another important point is that Nebius closed four large deals in Q2, with an average deal size exceeding $1 billion. Also, Nebius is taking prepayments from customers signing large deals, which will allow it to quickly build AI infrastructure without taking on debt and straining the balance sheet.
Specifically, 50% to 60% of the company's capital expenses will be financed by pre-payments. Meanwhile, the growing demand for Nebius' software-centric Token Factory platform, which helps customers run AI models and inference applications, increased by 3x in the previous quarter.
In all, the growing contract value for Nebius' AI data center infrastructure and the increasing use of its software solutions are helping the company clock solid top-line growth and reduce losses. Also, the company has built a solid pipeline that should allow it to capitalize on the heavy investments in AI data center capacity.
Nebius has increased its contracted data center power capacity guidance to 5 gigawatts (GW) by the end of 2026, up from the 4 GW guidance it issued in May. The contracted capacity refers to the agreements Nebius has in place with utility companies to build new data centers. Given that Nebius aims to end 2026 with connected data center capacity of 800 MW to 1 GW, the company is well-positioned to deliver outstanding revenue growth over the long run once its contracted capacity is taken into account.
Here's how the stock could become a multibagger
Nebius operates in a fast-growing market and is on track to significantly expand its connected data center capacity in the long run. This explains why the company's top line is anticipated to jump significantly through 2028.
NBIS Revenue Estimates for Current Fiscal Year data by YCharts
I won't be surprised to see Nebius sustain its phenomenal growth momentum beyond the next three years, driven by additional capacity and growing adoption of its AI software stack. However, the incredible growth that Nebius is poised to deliver through 2028 should easily help the stock become a multibagger.
A revenue of $22.4 billion at the end of 2028 (in line with consensus estimates seen in the above chart) will take its market cap to $170 billion, assuming it trades in line with the U.S. tech sector's average sales multiple of 7.6. That's 2.3x higher than its current market cap. However, this tech stock could deliver bigger gains over the next three years, as its remarkable growth should ideally be rewarded with a premium valuation, suggesting it isn't too late for investors to buy Nebius.
