Key insights
- Nebius Group, a Dutch AI cloud company, has seen its stock surge 240% this year, driven by 684% revenue growth and a strategic investment from Nvidia. Despite significant top-line expansion, the company remains unprofitable. Its current valuation, trading at 90 times trailing revenue, is significantly higher than comparable companies like CoreWeave, raising concerns about whether the stock is overvalued despite its AI-centric business model and growth prospects.
Buying a stock in the midst of a red-hot rally can be risky because it may eventually run out of steam. It's particularly concerning when the valuation has already gotten out of control and no longer has a grounding in fundamentals.
That's the scenario that investors find themselves in with Nebius Group (NBIS 3.27%). The tech stock is up around 240% this year. It's generated incredible growth, attracted an investment from Nvidia, and still offers attractive long-term opportunities, but there's no denying the stock has become expensive.
Is the stock still a good buy right now, or are you better off just putting Nebius on your watch list?
Nebius is a Dutch-based tech company that's right at the heart of the artificial intelligence (AI) revolution. It is an AI cloud company that provides a platform for businesses to train and deploy AI. It serves a variety of sectors, including healthcare, financial services, and retail, among others.
A quick look at its results confirms the growth has been incredible. During the first three months of the year, the company reported $399 million in revenue, which is an increase of 684% year over year. Although its operating loss actually increased from the prior-year period, investors appear to be willing to overlook that given Nebius' incredible top-line growth and continued growth opportunities.
Plus, with Nvidia announcing a strategic partnership with Nebius earlier this year that includes a $2 billion investment, investors likely see that as a strong vote of confidence in its future.
Due to its significant run-up in value, Nebius stock now trades at close to 90 times its trailing revenue. Even with tremendous growth ahead, it may be a steep price to pay for the stock, given that CoreWeave, a comparable business that helps tech giants train and run AI models, trades at less than 10 times sales.
At its current valuation, Nebius investors are paying for a lot of future growth, which means expectations will be high and potentially difficult to meet in upcoming earnings reports. Although Nebius has performed exceptionally well this year, I wouldn't buy it right now as there's considerable downside risk given how hot the stock has become. It may be a good idea to track the stock and keep an eye on it, but at an egregiously high premium, it could be running out of room to rise higher.