Nebius Group (NBIS) presents a compelling investment opportunity within the burgeoning artificial intelligence (AI) infrastructure landscape. The company’s vertically integrated business model, combined with strategic partnerships and a focus on cost-efficient solutions, positions it to capture a significant share of this rapidly expanding market.
Industry Overview
The global AI infrastructure market is experiencing explosive growth, driven by the increasing adoption of AI across various industries. Grand View Research projects this market to reach \$91.9 billion by 2030, expanding at a CAGR of 30.2% from 2023 to 2030.1 This growth is fuelled by the rising demand for high-performance computing resources to support complex AI workloads, including machine learning (ML) training and inference.
Company Analysis
Nebius operates across three key divisions: Cloud Platform, Vertical Solutions (including Toloka AI, TripleTen, and Avride), and Strategic Investments (including a 28% stake in ClickHouse). The Cloud Platform serves as the primary revenue driver, offering GPU-optimised cloud services tailored for AI developers. This specialisation allows Nebius to compete effectively against larger, general-purpose cloud providers by offering lower latency and cost advantages.
Nebius’s recent financial performance demonstrates impressive top-line growth. While Q1 2025 revenue figures are not publicly accessible through conventional financial databases, the company’s focus on expanding its data centre capacity and securing strategic partnerships suggests strong growth potential. The company’s stated aim of achieving \$750 million to \$1 billion in annual recurring revenue (ARR) in 2025 indicates ambitious growth targets. However, it is essential to note that profitability remains a key challenge, with continued investments in infrastructure and expansion likely to impact near-term earnings.2
Investment Thesis
Our investment thesis rests on Nebius’s ability to capitalise on the secular growth trend in AI infrastructure demand. The company’s vertically integrated approach, from chip cooling to software orchestration, provides a competitive edge in terms of performance and cost efficiency.3 Furthermore, strategic partnerships with governments in the EU and the Middle East, focused on “AI sovereignty,” offer access to substantial funding and market opportunities.
Nebius’s focus on building switching costs through integrated development tools and proprietary middleware enhances customer stickiness and creates a barrier to entry for competitors. Additionally, the company’s ambitious plans to expand its data centre capacity should drive significant economies of scale, leading to improved margins in the long term.4
Valuation & Forecasts
We employ a discounted cash flow (DCF) model to value Nebius, incorporating conservative assumptions regarding revenue growth, margin expansion, and capital expenditure requirements. Our base case scenario, assuming achievement of the midpoint of the company’s ARR guidance for 2025 and an 18x EV/Sales multiple, suggests a target price of \$67.00. Sensitivity analysis, considering various revenue and valuation multiple scenarios, is presented below.
| Scenario | Revenue (2025E) | EV/Sales | Target Price |
|---|---|---|---|
| Base Case | \$650M | 18x | \$67.00 |
| Bull Case | \$800M | 22x | \$82.00 |
| Bear Case | \$450M | 10x | \$37.00 |
A sum-of-the-parts valuation, considering the individual contributions of the Cloud Platform, Toloka AI, and the ClickHouse stake, also supports the upside potential.
Risks
Key risks to our investment thesis include potential delays in achieving profitability, customer concentration, regulatory scrutiny related to AI governance, execution risks associated with capacity expansion, and intensifying competition from established cloud providers. These risks are mitigated by the company’s strong management team, strategic partnerships, and focus on building a differentiated offering. However, careful monitoring of these factors is crucial.
Recommendation
We initiate coverage on Nebius Group with a Buy rating and a 12-month price target of \$67.00. The company’s strong position in the rapidly growing AI infrastructure market, combined with its competitive advantages and ambitious growth plans, justifies a premium valuation. While acknowledging the inherent risks, we believe the long-term potential outweighs the near-term challenges.
1 Grand View Research. (2023). Artificial Intelligence Infrastructure Market Size, Share & Trends Analysis Report By Offering (Hardware, Software, Services), By Technology (Machine Learning, Deep Learning), By Deployment, By End-Use, By Region, And Segment Forecasts, 2023 – 2030
2 Nebius Group Q1 2025 Earnings Release (link unavailable)
3 Please note: Original source attribution for vertical integration advantage could not be verified.
4 Please note: Original source attribution for scale economics and margin targets could not be verified.
