If you’ve never heard of Nebius Group (NASDAQ:NBIS) until recently, you’re definitely not alone. Shares of the up-and-coming AI infrastructure cloud play have gained a shocking 335% year to date and more than 560% in the past full year.
Undoubtedly, the parabolic rise of Nebius has made the relatively unknown AI play a fairly sizable $33 billion company, making it large enough to get noticed, but still small enough to be capable of further upside as the AI revolution continues working in the firm’s favor. Indeed, Nebius’ high-profile partnership with Microsoft (NASDAQ:MSFT) may have put the firm on the map for AI investors who typically don’t look to the mid-cap names for opportunities. Making a $19.4 billion deal with Microsoft is sure to gain the attention of most investors.
And while I’d discourage chasing red-hot names like NBIS without putting in more than enough homework, given the risks of betting on a name that’s already been a multi-bagger in a year, I do think that some of the braver risk takers out there may wish to stash the name on their watchlists, given the company’s explosive potential as the AI trade works its way through the cloud infrastructure plays, which, I believe, might be more explosive places to be than the semiconductor names themselves.
But the big question is just how much higher can the up-and-comer fly? If you do not buy into the “AI bubble” fears, Nebius stock might be worth a tiny nibble, especially as the firm looks to expand upon its partnerships and perhaps further its relationship with Microsoft.
The rise of the AIaaS or neocloud plays makes it an exciting time to be in Nebius
The AI-as-a-service (AIaaS) model may very well be the new Software-as-a-Service (SaaS) for gain-seeking investors, especially as AI technologies look to eat up software’s lunch, so to speak. Either way, Nebius stock gained close to 9% on Thursday’s down day that saw most tech names fall into the red. As the AIaaS or the neocloud companies, as some like to refer to them, continue to gain traction, I think it could be difficult to tell when their accelerating growth rates will plateau.
Indeed, we’ve seen this many times before with a wide range of firms that saw their sales growth rates hit an inflection point as the rising tide of the AI revolution came sweeping in. Indeed, Nebius was a small, unknown firm a year ago, but now, it’s a rising star that might even evolve to become one of the new AI giants in this market.
While Nebius’ stock has caught many analysts off guard with its explosive growth, I still think investors are wise to be a bit cautious with the name. The stock isn’t just expensive, it’s obscenely expensive at close to 115 times price-to-sales (P/S). At the same time, though, the growth rate is obscenely high. It’s hard to tell where growth will settle, but I think Nebius shares could go either way from here.
NBIS stock looks very pricey, but shares look unstopable
Personally, I think Nebius’ AI infrastructure leadership is worth getting behind, but preferably on a pullback. There’s a lot of hype surrounding the name, and if there is an “AI winter,” NBIS could get a 50% haircut really quickly. If you’ve got a long-term horizon and would cheer for a pullback, gladly buying into one, NBIS stock might be worth careful consideration.
Personally, I’d be much more inclined to take analysts’ advice by waiting for more of a drawdown. After all, shares of NBIS have already soared above and beyond the price targets of many upbeat analysts on Wall Street. That has me quite concerned about the severity of the next inevitable drawdown with a neocloud name that I believe has already soared into the stratosphere.
Of course, such a name can always climb into the mesosphere or even the exosphere. For instance, some of the bigger NBIS bulls think there’s room to run, with Northland Securities seeing shares gaining another 55% or so to $206 per share from here.
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