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SUMMARY
Parkev Tatevosian, CFA, reviews the recent performance and outlook for Nebius Group, an AI-focused company whose stock has surged over 530% in the past year. He discusses the company's rapid revenue growth, aggressive expansion, and updated valuation, ultimately downgrading his rating from buy to hold due to current risk and valuation concerns.
MAIN POINTS
- Nebius Group stock has surged over 530% in the past year, prompting questions about whether to take profits or continue holding.
- The company secured 1.2 gigawatts of power and land in Pennsylvania for a new AI factory, addressing strong demand for AI computing.
- Nebius reported $399 million in quarterly revenue, up 684% year-over-year, with net losses improving as a percentage of revenue.
- Operating costs and debt have increased significantly as Nebius rapidly expands data center capacity to meet customer demand.
- Nebius funds its growth through both borrowing and large upfront customer deposits, with deferred revenue reaching $3.2 billion.
- Given the stock's price appreciation and current valuation, the rating is downgraded to hold, with advice to trim positions and manage portfolio risk.
DETAILED ANALYSIS
Nebius Group has experienced extraordinary stock price appreciation, rising more than 530% over the past year and over 172% in 2026 alone. This performance has been driven by surging demand for artificial intelligence computing, with the company recently securing 1.2 gigawatts of power and land in Pennsylvania to build a new AI factory. The expansion is timely, as demand for AI computing capacity continues to outpace supply, and Nebius already has contracts and customers lined up for its services.
In its most recent quarter, Nebius reported $399 million in revenue, representing a 684% increase from the previous year. While the company remains unprofitable, its net loss as a percentage of revenue has improved dramatically, dropping from over 150% to just 25%. However, the company’s aggressive growth strategy has led to a sharp rise in costs, with cost of revenue up 320% and total operating expenses up 208%.
To fund this expansion, Nebius has more than doubled its debt to $8.4 billion and increased deferred revenue to $3.2 billion by collecting large upfront payments from customers. The company’s business model involves owning and operating data centers and renting capacity to major technology firms such as Meta and Microsoft, who sometimes prefer to rent rather than build their own infrastructure. Despite the robust growth and strong future revenue projections—analysts expect Nebius to generate over $16 billion in revenue by 2028—the stock’s valuation has risen substantially.
The forward price-to-sales ratio has increased, and the intrinsic value per share, based on discounted cash flow analysis, is now below the current market price. As a result, the stock is now considered fairly valued, and the recommendation has shifted from buy to hold. Investors are advised to consider trimming positions to manage risk, especially if Nebius has become an outsized portion of their portfolios.
LINKS
- YouTube channel membership for exclusive perks and early access.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on a six-step investing framework.
- Fiscal.ai investment research platform with a discount for viewers.
- Webull investing platform sign-up with bonus shares.
- Subscription link for Parkev Tatevosian's free monthly newsletter on Substack.