Nebius Surges 81% YTD: How Should Investors Play NBIS Stock?

Nebius Group N.V. NBIS shares have gained 81.4% year to date, outperforming the Zacks Computer & Technology sector and the Zacks Internet Software Services industry’s growth of 7.9% and 26.8%, respectively. The S&P 500 Composite is up 6.2% over the same time frame.

Price Performance

The gain is also much higher than the likes of Microsoft MSFT and Amazon AMZN, who dominate the global AI infrastructure space. MSFT and AMZN have gained 18.3% and 1.8%, respectively. However, CoreWeave CRWV has skyrocketed 313% since it started trading on March 28.

After the massive surge, investors are likely to contemplate what to do next, whether it is time to take profits or continue holding NBIS.

Plenty of Challenges For NBIS

Based in Amsterdam, Nebius is a neo cloud company. After a massive sell-off in April, the stock price has recovered nicely. However, challenges remain for NBIS, given a volatile global macroeconomic environment.

Nebius faces tremendous competition in the AI cloud infrastructure space, which boasts behemoths like Amazon, Microsoft and Alphabet as well as small players like CoreWeave. CRWV is a GPU-focused AI hyperscaler.

Amazon Web Services and Microsoft’s Azure cloud platform together dominate more than half of the cloud infrastructure services market. Additionally, Microsoft’s exclusive partnership with OpenAI gives Azure cloud the priority to access leading AI models like GPT-4 Turbo and DALL·E. Amazon's AI business segment now operates at a multi-billion-dollar annual revenue run rate with triple-digit percentage growth year over year. Amazon's strategy focuses on custom silicon development, particularly its Trainium 2 chips, which offer 30-40% better price performance compared to GPU-based instances. NBIS may face significant pricing pressure as hyperscalers increasingly optimize for AI workloads and expand GPU availability. 

Nebius Group N.V. Price, Consensus and EPS Surprise

Nebius Group N.V. price-consensus-eps-surprise-chart | Nebius Group N.V. Quote

Despite its exceptional top-line growth, NBIS remains unprofitable, with management reaffirming that adjusted EBITDA will be negative for the full year 2025. Though it added that adjusted EBITDA will turn positive at “some point in the second half of 2025.”

NBIS has also raised its 2025 capital expenditure forecast to approximately $2 billion from the previous estimate of $1.5 billion, primarily due to some planned fourth-quarter spending shifting into early first quarter. Higher capex can be a concern if revenues do not keep up the required pace to sustain such high capital intensity, especially in a macro environment where AI demand cycles could fluctuate due to competitive pricing and regulatory changes.  Moreover, scaling aggressively (multiple data centers in various regions, including one in Israel) involves execution risk.

Nonetheless, NBIS is focusing on technical enhancements that increase reliability and reduce downtime to boost customer retention to gain a larger share of the AI cloud compute market. Nebius remains confident in achieving its full-year ARR guidance of $750 million to $1 billion. For 2025, the company also reaffirmed its overall revenue guidance of $500 million to $700 million.

Analysts have significantly revised their earnings estimates downward for NBIS’ bottom line.

NBIS' Stretched Valuation is Concerning

Valuation-wise, Nebius seems overvalued, as suggested by the Value Score of F.

In terms of Price/Book, NBIS shares are trading at 3.75X, lower than the Internet Software Services industry’s ratio of 4.2X, but it could mean more risk than opportunity.

Offload NBIS for Now

Given the stiff competition from hyperscalers like Amazon and Microsoft, NBIS faces significant pricing pressure and execution risks as it scales. Continued unprofitability and downward earnings revisions further temper the near-term outlook. Higher capital expenditures carry risk, especially amid a volatile macro environment. With a stretched valuation, investors may be better off locking in gains and offloading the stock for now.

At present, NBIS carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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