Nebius Group N.V. (NBIS) has been on a tear, fueled by the seemingly insatiable demand for AI infrastructure. The stock’s 350% increase in the past year is eye-catching, but does the underlying data support such a valuation? Or is this another case of market exuberance outpacing reality?
The core argument for Nebius rests on two pillars: explosive revenue growth and massive contract backlogs. The company reported a 355% increase in revenue in the last quarter. This is impressive, no doubt. Nebius is selling out all available data center capacity, which is hard to ignore. Meta Platforms and Microsoft are throwing billions at them. Microsoft's potential $19.4 billion contract is a headline grabber. But let's dig a little deeper than the press releases.
While these contracts are substantial, revenue from the Microsoft deal isn’t expected to materialize until 2026. That's a long runway. The Meta contract, while significant at $3 billion over five years, was “limited to the amount of capacity that we had available.” This suggests that demand far exceeds Nebius' current capabilities. So, the question isn't just about securing contracts, but about fulfilling them.
The company plans to increase connected data center power capacity to 220 MW by the end of 2025, a tenfold increase from 2024. By the end of 2026, they're aiming for 800 MW to 1 GW. These are ambitious targets. Can they realistically achieve this level of expansion, and more importantly, can they do it profitably? The data points to a potential bottleneck in execution.
One critical, often glossed-over, figure is Nebius' gross margin, which is reported as -1312.43%. Yes, that's a negative thirteen hundred and twelve percent. This is the part of the report that I find genuinely puzzling. It suggests that the company is spending drastically more to generate revenue than it is actually earning. This could be due to aggressive expansion costs, but it's a red flag that needs further investigation. It's worth noting that the source article doesn't offer any further explanation on why this number is so negative.
Nebius is currently trading at around 54 times sales. That's a steep price, even for a high-growth company. The argument is that the company's growth rate and backlog justify this valuation. If Nebius hits $4.34 billion in revenue in 2027 and trades at 9 times sales, its market cap could reach $39 billion. This represents a 64% increase from current levels. But this is all predicated on a series of "ifs." If they can execute their expansion plans, if they can maintain their contract momentum, and if they can improve their profitability.
Cramer called Nebius "too speculative." He's not wrong, but "speculative" doesn't mean "worthless." It means the risk-reward ratio is skewed towards risk. The potential upside is significant, but the downside is equally substantial. As Jim Cramer noted, Cramer’s Lightning Round: Nebius is ‘too speculative’, the stock carries significant risk.
Let's talk about sentiment. Online forums are buzzing about Nebius, with retail investors touting it as the next Coreweave or NVIDIA. But how much of this enthusiasm is based on genuine analysis, and how much is driven by FOMO (Fear Of Missing Out)? The data suggests a significant portion is emotionally driven. Comments sections are filled with rocket emojis and declarations of "to the moon!" These are not signs of rational investment decisions.
Nebius has undeniable potential. The demand for AI infrastructure is real, and the company is well-positioned to capitalize on this trend. However, the current valuation seems detached from reality. The negative gross margins and ambitious expansion plans raise serious questions about the company's ability to deliver on its promises. The hype surrounding Nebius needs a healthy dose of skepticism.
