Nebius (NASDAQ: NBIS) has made some big splashes over the past few weeks. There have been several monster deals announced which have caused its stock price to rise, but it still could be a great value and offer significant upside over the next few years.
But could it be enough to set you up for life? Let’s find out.
Nebius’s platform is rising in popularity
Nebius is essentially an artificial intelligence (AI)-focused cloud computing company. It’s building data centers and renting out space from others to place its AI-focussed computing equipment in, renting out that capacity to individual developers and big corporations. While it may seem odd that large companies like Meta Platforms are building their own data centers to utilize Nebius’s services, it allows them to maintain more of an asset-light approach in exchange for a slightly higher cost of computing.
If AI isn’t what everyone hopes it will be, this is a smart approach, which is why Nebius has major contracts with companies like Meta and Microsoft. These two both want to ensure they aren’t overbuilding, so renting part of their computing capacity makes a lot of sense for them.
Recently, Meta and Nebius announced a $27 billion deal that will span five years. This indicates monster growth, as Nebius has only generated $530 million in revenue over the past 12 months. On another note, Nebius also announced a partnership with Nvidia that involves Nvidia investing $2 billion in Nebius in exchange for Nebius gaining early access to Nvidia’s latest technologies. This will make Nebius the go-to place to utilize the latest and greatest technology, making it a perfect company to partner with.
With all of this huge growth expected to occur, is Nebius a stock that can set you up for life?
Maybe.
The biggest issue concerning Nebius right now is what its long-term outlook looks like. Right now, it’s rapidly growing thanks to huge AI demand, but there will be a day when that demand isn’t as widespread. Currently, Nebius isn’t generating any profits because it’s focused on expansion, and investors don’t know what the long-term profit picture looks like.
There are several examples of cloud computing giants delivering 30% or greater operating margins. If Nebius can deliver monster growth like they’re forecasting and rise to a solid operating profile over the next few years, I have no doubt that Nebius could become a monster winner and deliver huge returns, but the risk is incredibly high. AI demand could burn out, and Nebius may never reach profitability, leading to a stock flop.
As a result, I think investors can maintain a small position sizing in Neibus stock and benefit from its long-term growth trend. If it pans out, it will provide monstrous gains in your portfolio. If it flops, then the small position sizing will keep losses to a minimum.
