Executive Summary
Investment Recommendation: Buy | Target Price: $42.00 | Time Horizon: 12 Months
Nebius Group (NBIS) presents a compelling investment opportunity within the rapidly expanding AI infrastructure sector. The company’s specialized focus on GPU-accelerated cloud computing services for AI training and inference workloads positions it to capitalize on the secular growth of artificial intelligence. NBIS exhibits strong revenue growth (385% YoY in Q1 20251) and a clear path to profitability by H2 2025.2 Despite superior growth metrics compared to peers, NBIS trades at a discount, creating an attractive entry point. Key risks include reliance on NVIDIA GPUs and competition from established hyperscalers, but the company’s proprietary technology, strategic European focus, and strong management team mitigate these concerns.
Industry Overview
The global AI infrastructure market is experiencing explosive growth, projected to reach $250 billion by 2027, representing a 20% CAGR.3 This expansion is driven by the increasing adoption of AI across various industries and the rising demand for specialized compute resources. Within this market, the dedicated AI cloud segment, estimated at over $50 billion, is a key focus area for NBIS.4 Key growth drivers include the shift from general-purpose cloud to specialized AI infrastructure, persistent GPU supply shortages creating pricing power for efficient providers, and European data sovereignty regulations favouring local players like NBIS.
Company Analysis
NBIS provides a vertically integrated AI infrastructure solution, encompassing on-demand access to NVIDIA H100/A100 clusters via its proprietary orchestration software. The company’s revenue streams are primarily derived from consumption-based compute (85%), complemented by reserved instances and managed services. NBIS caters to a diverse client base including AI startups, enterprise R&D teams, and hyperscalers seeking supplemental compute capacity. The company’s recent performance highlights its impressive growth trajectory, with Q1 2025 revenue reaching $55.3 million (+385% YoY) and April 2025 annual recurring revenue (ARR) reaching $310 million (+684% YoY).1
Investment Thesis
Our investment thesis is predicated on NBIS’s ability to capitalize on the rapidly expanding European AI infrastructure market. The company’s key competitive advantages include:
- Proprietary Technology: NBIS’s GPU virtualization software achieves industry-leading utilization rates (85%+), resulting in superior cost efficiency compared to competitors.5
- Strategic Focus: NBIS’s concentration on the European market provides a competitive edge by addressing data sovereignty concerns and mitigating direct competition from US-based hyperscalers.
- Strong Growth Momentum: The company’s exceptional revenue growth and expanding ARR demonstrate its ability to acquire and retain customers in a high-growth market.
Valuation & Forecasts
We employ a discounted cash flow (DCF) model to value NBIS, incorporating a 15% discount rate and a 3% terminal growth rate. Our base case projects FY2025 revenue of $600 million, growing to $1.2 billion in FY2026. We anticipate EBITDA margins to expand to 25% by FY2026, driven by operating leverage and increasing scale. Based on these assumptions, our 12-month price target is $42.00, representing a 15x EV/S multiple on our FY2026 revenue estimate. This valuation is supported by a comparison to peers such as CoreWeave, which trades at a higher multiple despite comparable growth prospects.6
Risks
Key risks to our investment thesis include:
- GPU Supply Chain Constraints: NBIS’s reliance on NVIDIA GPUs exposes the company to potential supply disruptions.7
- Competition from Hyperscalers: Established cloud providers could intensify competition by offering bundled AI services at lower price points.
- Execution Risk: Achieving projected growth targets requires successful execution of expansion plans and operational scale-up.
Recommendation
We initiate coverage on NBIS with a Buy recommendation and a 12-month price target of $42.00. We believe the company is well-positioned to benefit from the secular growth of the AI infrastructure market, and its current valuation represents an attractive entry point for investors. Key catalysts include the launch of the UK data center and continued expansion of its customer base. We will closely monitor the company’s execution, competitive landscape, and GPU supply chain dynamics.
1 Nebius Group Q1 2025 Earnings Release.
2 Nebius Group Q1 2025 Earnings Call Transcript.
3 “Global AI Infrastructure Market Report,” ResearchAndMarkets.com, 2024.
4 Internal estimates based on industry reports and management commentary.
5 Nebius Group Investor Presentation, May 2025.
6 Bloomberg consensus estimates.
7 “NVIDIA Warns of Continued GPU Supply Constraints,” Reuters, June 2025.
