Nebius stock: to buy or not to buy this AI infrastructure play?

The ongoing surge in the Nebius stock price has led to divisions in Wall Street. Many investors believe that it has more room to grow, while others expect it to crumble, citing its hefty valuation. Consequently, its short interest has jumped to nearly 10%. So, is it safe to buy NBIS stock today?

The case for the Nebius stock

Nebius is a large technology company that operates three core businesses. Toloka AI is a company that provide data labeling and annotation for AI models, while TripleTen is a leading company that provides online bootcamps and training solutions for tech professionals. 

The company also operates Avride, which provides autonomous driving solutions. Still, Nebius is known as a competitor to CoreWeave in that it operates large data centers that are essential in the artificial intelligence space. 

Bulls believe that the Nebius has substantial room to grow as the artificial intelligence industry is still in its infancy. They cite recent reports by companies like Bain and McKinsey which have predicted that the industry will require trillions in spending in the coming years.

Most importantly, bulls cite the recent deal between Nebius and Microsoft as a justification to the bullish outlook. According to the deal, Microsoft will be an anchor client that will spend over $17 billion in the next five years using its New Jersey data center.

This deal means that the company may get more multi-billion clients from companies like Meta Platforms, Anthropic, Perplexity AI, OpenAI, Amazon, and Apple.

The most recent results showed that Nebius business was growing at a substantial rate. Its revenue jumped by 625% YoY to $105 million and the management guided to faster growth, with the annualized run-rate (ARR) expected to end the year at $1.1 billion, higher than the previous guidance of $900 million.

Analysts are also highly bullish on the company in terms of its revenue. The average estimate is that its revenue will hit $155 million this quarter, a $55 million increase from what it made in Q2. 

Analysts see the company’s annual revenue coming in at $576 million, a big increase from the $117 million it made last year. Its revenue will then jump to $1.6 billion next year.

Odds are high that the company will do much better than what analysts expect considering that these estimates did not include the Microsoft deal.

The case against NBIS stock

On the other hand, some analysts believe that the Nebius stock price has more downside to go in the coming weeks.

The main bearish view is that the industry is becoming highly concentrated, a move that will affect its margins in the long term. In addition to CoreWeave, the industry has attracted more companies in the past few months.

Some of the top companies that have come up in the industry are IREN, Core Scientific, Riot Platforms, Cipher Mining, TeraWulf, and Bitfarms.

The other main concern is that it has become a highly overvalued company in the past few months. It has a forward PE ratio of 110, much higher than the sector median of 33. 

Additionally, the company will become highly dilutive as it continues to raise capital to build its data centers as its losses mount. Its loss in the last quarter stood at over $175 million, up from $61 million in the same period last year.

A major risk the company has is its depreciation as the company is now focusing on Nvidia’s Blackwell Ultra GPU. Ultimately, the company will upgrade the GPU, a move that may push it to spend billions of dollars. 

Summary

Nebius stock price has jumped this year. While a case can be made to buy it today, chances are that the stock could pull back now that it has become overvalued and overbought. Also, the company could go through mean reversion as it has moved much higher than the historical moving averages.

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