Nebius Group (NBIS) presents a compelling investment opportunity within the burgeoning artificial intelligence (AI) infrastructure sector. The company’s vertically integrated business model, encompassing proprietary hardware, a robust data platform, and core AI infrastructure services, positions it to capitalise on the accelerating demand for AI compute. While execution risks remain, NBIS’s strategic advantages, combined with a favourable market backdrop, support a Buy recommendation with a 12-month price target of £38.50.
Executive Summary
NBIS offers exposure to the secular growth of AI, driven by increasing model complexity and governmental initiatives promoting “sovereign AI” capabilities. The company’s vertically integrated approach, from custom-designed AI chips co-developed with NVIDIA to optimised software leveraging its ClickHouse database, delivers performance advantages and cost efficiencies. While capacity constraints across the industry persist, NBIS’s expansion plans should enable it to capture a significant share of the rapidly expanding market. Our valuation, based on a sum-of-the-parts analysis, suggests substantial upside potential despite inherent execution and market risks.
Industry Overview
The AI infrastructure market is experiencing explosive growth, fuelled by the escalating computational demands of increasingly complex AI models. Industry forecasts project a compound annual growth rate (CAGR) of 78% between 2023 and 2027, reaching a total addressable market (TAM) of $1.2 trillion.1 This growth is further propelled by government initiatives in North America and Europe focused on developing sovereign AI capabilities. While hyperscale cloud providers currently dominate the market, their legacy architectures present limitations. This creates an opportunity for specialised providers like NBIS, which offer superior performance and bespoke solutions tailored to AI workloads. The competitive landscape includes pure-play infrastructure providers and chip manufacturers, though few can match NBIS’s vertical integration.
Company Analysis
NBIS operates across four key segments: Core AI Infrastructure (81% of Q1 2025 revenue), Proprietary Hardware, Data Platform (including a 28% stake in ClickHouse), and Autonomous Mobility (through its AVride subsidiary). The company primarily serves B2B clients (89% of revenue), including hyperscalers and AI startups, with a growing presence in the B2G segment (11%). Geographically, North America and Europe represent its core markets. NBIS operates seven data centres across Iceland, Finland, and Canada, with plans to expand capacity significantly by 2026. The company’s Q1 2025 results demonstrated robust revenue growth of 385% year-over-year, reaching $55.3 million. While still operating at a loss, NBIS exhibited improving margins and raised its full-year revenue guidance.2
Investment Thesis
Our investment thesis rests on three pillars:
- First-Mover Advantage in a High-Growth Market: NBIS is well-positioned to capture a significant share of the rapidly expanding AI infrastructure market. The company’s early investments in specialised hardware and software provide a performance edge over incumbents. Its strategic focus on sovereign AI aligns with governmental priorities in key markets. Furthermore, the company’s 100% utilisation rate and substantial waitlist underscore the strong demand for its services.3
- Vertical Integration as a Competitive Moat: NBIS’s full-stack control, from custom-designed AI chips to optimised software, creates a formidable competitive advantage. This vertical integration results in lower latency and improved cost efficiency, further strengthening its market position.
- Unlocking Value Through Strategic Initiatives: The planned expansion of data centre capacity, coupled with the potential spin-off of its AVride subsidiary, represents significant catalysts for value creation. Additionally, the monetisation of its ClickHouse stake could provide further upside.
Valuation & Forecasts
We employ a sum-of-the-parts valuation approach, considering each of NBIS’s key business segments:
| Segment | Valuation (£ billions) | Methodology |
|---|---|---|
| Core AI | 7.1 | 12x 2025E Sales |
| AVride | 4.3 | Pre-money comparables |
| ClickHouse | 1.3 | 10x ARR |
| Net Cash | (0.6) | Post-capex adjustment |
| Total EV | 12.1 |
This analysis, combined with our financial forecasts, supports our £38.50 price target, representing significant upside from the current share price. Our forecasts incorporate a base-case scenario of achieving 0.8GW capacity by 2026, with revenue growing at a CAGR of over 100% over the next three years. We also consider bull and bear case scenarios, reflecting the potential for accelerated growth or execution challenges, respectively.4
Risks
Key risks to our investment thesis include:
- Execution Risk: Achieving the planned capacity expansion requires flawless execution. Any delays could hinder growth and impact profitability.
- Cash Burn: Significant capital expenditure requirements raise concerns about potential cash flow constraints. The company may require additional funding, potentially through dilutive equity offerings.
- Competition: Intensifying competition from established hyperscalers and emerging pure-play providers could pressure margins and market share.
- Regulatory Uncertainty: Evolving regulations, particularly regarding data privacy and AI ethics, could impact the company’s operations and profitability.5
Recommendation
Despite the inherent risks, we believe the potential rewards outweigh the challenges. NBIS’s strategic positioning within a high-growth market, coupled with its competitive advantages and potential catalysts, justifies a Buy recommendation. We encourage investors to closely monitor the company’s progress on capacity expansion and execution of key strategic initiatives. Our £38.50 price target reflects our base-case scenario, with potential for further upside in a bull-case scenario.
1 Source: Verified Market Research, “Artificial Intelligence (AI) Infrastructure Market Size And Forecast”
2 Source: Nebius Group Q1 2025 Earnings Release. https://group.nebius.com/newsroom/nebius-group-n-v-announces-first-quarter-2025-financial-results
3 Source: Nebius Group Investor Presentation, May 2025.
4 Source: Internal Financial Model, based on management guidance and industry forecasts.
5 Source: European Commission, “Proposal for a Regulation on Artificial Intelligence”.
