Justin Pope, The Motley Fool
5 min read
The artificial intelligence (AI) trade has been the driving force behind the stock market’s strong performance these past few years. But recent concerns over funding for data centers and other AI infrastructure have sparked a sell-off among AI stocks over the past month.
Nebius Group (NASDAQ: NBIS), an AI cloud company, has been caught in the turmoil. Shares traded near $250 in September, nearly touching $300 per share before the AI trade began to lose steam.
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All of a sudden, Nebius sits 36% off its high. Should investors buy Nebius Group stock? The financing concerns matter because Nebius needs substantial capital to build the AI data centers it leases to AI companies. Here’s what you need to know.
The growth is impressive and undeniable
Computing power is arguably the most important bottleneck for AI’s advancement and adoption. Smarter AI models and more users both translate to higher demand for compute.
Nebius plays an important role in this. The company builds specialized data centers, fitted with Nvidia graphics processing unit (GPU) chips designed specifically for AI workloads. It then leases them to its customers, primarily Microsoft and Meta Platforms.
These two companies are among the largest AI hyperscalers, so their computing needs are setting Nebius on an explosive growth trajectory. Wall Street analysts estimate that revenue growth will continue to accelerate, finishing this year at around $3.34 billion and then soaring to $12.24 billion next year.
NBIS Revenue (TTM) data by YCharts.
Nebius has more than $40 billion in long-term commitments from investment-grade customers, and AI GPU leader Nvidia has a stake in the company. Nebius is also among the first companies to offer access to AI servers using Nvidia’s Vera Rubin AI chip platform.
The financing is a legitimate cause for concern
A major issue facing Nebius is that it must build out its AI data centers before it can really monetize them. As a result, the company is burning through startling amounts of capital ahead of this expected revenue surge next year. Management anticipates $20 billion to $25 billion in capital expenditures (capex) this year and is funding them through a combination of debt and new stock.
All that growth has certainly enticed investors, who have driven Nebius’ market capitalization to $43 billion. That’s arguably a hefty valuation for a company that’s basically diluting existing shareholders and loading up its balance sheet with debt before it’s consistently profitable.
