In my initial analysis of Nebius Group (NBIS) about a month ago, I gave a broad overview of why I saw this stock as a standout opportunity in the AI infrastructure space. Since then, my conviction has only grown, despite the tech-sector sell-offs seen in recent weeks. I’ve doubled down on my position. Diving deeper into Nebius’s strategic positioning, particularly around its graphics processing unit (GPU) offerings and European data center operations, reveals several solid reasons for remaining bullish on ON stock.
I see bright skies ahead for ON Semiconductor despite some understandable caution in the market around AI-related stocks. I firmly believe the market continues to underestimate the tremendous potential AI infrastructure firms like Nebius offer, especially considering recent insights from industry visionaries like former Google (GOOGL) CEO Eric Schmidt.
Nebius’s GPU Strategy Is Built for AI
Nebius’s pricing for GPU computing is significantly lower than traditional cloud providers, offering NVIDIA (NVDA) H100 GPU instances at approximately $2.00 per GPU-hour with a volume-based commitment, or about $2.95 per GPU-hour for on-demand usage.
In comparison, AWS’s older-generation GPU instances, such as the p4d instance with 8 NVIDIA A100 GPUs, cost around $32.77 per hour, roughly equating to over $4.00 per GPU-hour. Even AWS’s latest H100-based GPU instances are priced similarly or higher, making Nebius’s offerings distinctly competitive, particularly for budget-conscious AI startups.
Moreover, Nebius has deepened its ties with NVIDIA, recently becoming an NVIDIA Preferred Cloud Service Provider. NVIDIA even invested in Nebius during its recent funding round, underscoring a strategic partnership that benefits both firms. This alliance provides Nebius with early access to new GPUs, which is critical during global GPU shortages. While some might worry about Nebius’s heavy reliance on NVIDIA, I see it as a strength, at least in the near term, given NVIDIA’s market dominance.
European Base Fuels Global Expansion
Another compelling part of the Nebius story is its strategic footprint across Europe. The company’s flagship data center in Mäntsälä, Finland, currently offers around 40 megawatts of IT load, with plans to nearly double that capacity soon. This location is especially strategic because of Finland’s stable political environment, strong data protection regulations, and favorable climate conditions for data centers.
Nebius has also expanded to Western Europe, setting up GPU clusters in Paris, France, and Keflavík, Iceland. The Paris facility is intriguing because it positions Nebius firmly within the EU, helping customers meet stringent GDPR requirements. Meanwhile, the Icelandic site taps into 100% renewable energy, allowing Nebius to offer eco-conscious clients a greener computing option. While each location carries some regulatory and operational risks, such as meeting strict French data sovereignty laws or Iceland’s geographic isolation, they collectively give Nebius a robust and diverse European infrastructure.
In the U.S., Nebius is expanding its presence with a new 300-megawatt data center under construction in Vineland, New Jersey, and an operational GPU cluster in Kansas City, Missouri, both designed to meet the growing demand for AI-native cloud infrastructure. This sets the stage for an exciting international presence in the coming years.
David vs. Goliath in AI Infrastructure
Admittedly, Nebius operates in a fiercely competitive space alongside cloud titans like AWS (AMZN), Microsoft (MSFT) Azure, and Google Cloud. These incumbents benefit from deep resources and broad ecosystems that Nebius cannot directly match. However, Nebius’s focused strategy—dedicating itself exclusively to GPU-based AI infrastructure—differentiates it meaningfully.
Financially, Nebius is rapidly expanding, posting revenue growth of 462% year-over-year in FY2024. Management expects annual recurring revenue (ARR) to reach between $750 million and $1 billion by the end of FY2025. However, profitability remains elusive as Nebius continues to heavily reinvest in growth, planning capital expenditures between $600 million and $1.5 billion for infrastructure expansion.
With its current market capitalization around $5 billion, the stock trades at approximately 8x its forward sales, reflecting high growth expectations but also significant execution risks. Despite short-term financial pressures, Nebius’s strong cash position of nearly $2.5 billion provides ample runway for sustained growth.
The biggest threat comes from larger, well-capitalized rivals capable of undercutting prices or bundling AI with adjacent services. Yet, Nebius’s advantages are compelling. Its smaller size enables agility, while a deep partnership with NVIDIA and a singular focus on AI position it well in a fast-evolving market.
Former Google CEO Eric Schmidt has underscored the transformative scale of AI, calling it a revolution far exceeding the internet era, and argues that society must prioritize AI infrastructure investment above all else. This conviction suggests the AI boom is only just beginning, with AI capabilities likely to expand to encompass all of human skillsets combined, particularly in knowledge work.
Specialized platforms like Nebius are poised to capture a significant portion of this upside that is currently underappreciated by the market, despite the already high level of investor attention. Investing in AI may not be contrarian, but investing heavily due to outsized long-term growth expectations certainly is.
What is the Price Target for Nebius Group?
On Wall Street, Nebius has a consensus Moderate Buy rating based on two Buys, zero Holds, and zero Sells over the past three months. The average NBIS price target is $45, which indicates a 106% upside potential over the next 12 months. This is a high-conviction investment that carries substantial risk, but its strong cash position keeps me confident that a triple-digit annual return is within reach.
Nebius Offers Risk-On Alpha
Nebius represents an exciting, albeit somewhat speculative, play in the booming AI infrastructure market. It’s worth owning the stock at a small percentage of a total, risk-mitigated portfolio. After all, the company’s GPU-centric strategy, competitive pricing, robust European data center network, and powerful NVIDIA partnership position it uniquely among AI-focused cloud providers.
While significant competitive and execution risks exist, Nebius’s targeted approach and scalable infrastructure could deliver substantial upside if the AI revolution unfolds as expected. For investors with an appetite for risk and an eye toward long-term growth, Nebius offers an intriguing opportunity to participate in shaping the future of the global economy.