Nebius Group (NASDAQ: NBIS) saw its shares climb approximately 2% in premarket trading on Wednesday after William Blair initiated coverage of the AI-focused cloud provider with an 'Outperform' rating. The endorsement adds to a growing list of bullish calls from Wall Street analysts who see the company as a key player in the rapidly expanding AI infrastructure market.
Analyst Jason Ader, who leads the coverage for William Blair, argued that Nebius possesses several attributes that could set it apart from other so-called 'neocloud' providers. These include substantial infrastructure scale, advanced software capabilities, relationships with major customers, and access to low-cost capital. Ader emphasized that Nebius is "not just another neocloud," suggesting the current valuation does not fully reflect the company's long-term earnings potential.
The initiation follows a similarly optimistic assessment from BNP Paribas last week. The French bank upgraded Nebius to 'Outperform' from 'Neutral' and raised its price target to $399 from $260. BNP Paribas analysts noted that Nebius's outlook had "meaningfully improved" since they began covering the company in June. They projected that Nebius could approach $22 billion in annual recurring revenue by the end of 2027, and that the company's eventual 2027 guidance could materially reset market estimates higher.
Nebius has been rapidly expanding its AI cloud infrastructure to meet surging demand for computing capacity. The company reported second-quarter revenue of $582.3 million, a 454% increase from the same period last year. Adjusted EBITDA swung from a loss of $21 million to earnings of $236.2 million, while its adjusted net loss narrowed by 64% year over year to $33.2 million. Management described the second quarter as its best commercial quarter to date, with four major AI cloud deals carrying an average total contract value of more than $1 billion each.
The company has also broadened its customer base and infrastructure footprint. A five-year agreement with Meta Platforms has a potential value of up to approximately $27 billion. In July, Nebius announced it had more than $40 billion in additional contracted revenue from investment-grade customers, including Microsoft and Meta. The company also unveiled a $10 billion expansion to build an AI factory in Finland and has begun validating its first full Nvidia Vera Rubin NVL72 rack at its Finland data centre.
To support its ambitious expansion plans, Nebius has raised significant capital. In August, the company closed a $5.75 billion convertible-note offering. Nvidia holds a passive stake in the company, and Nebius has raised prices for leasing selected Nvidia chips on a pay-as-you-go basis starting October 1. Earlier this month, Palantir named Nebius its preferred sovereign AI infrastructure partner under a strategic agreement to provide Nebius compute and inference capabilities to eligible Palantir customers.
According to data from The Wall Street Journal, analysts have a consensus overweight rating on Nebius stock, with 14 buy ratings, one overweight rating, seven hold ratings, one underweight rating, and one sell rating. The positive sentiment comes despite broader concerns about AI-related valuations and potential market volatility.
Investors will be watching closely to see if Nebius can sustain its growth trajectory and deliver on the ambitious revenue projections laid out by analysts. The company's ability to secure large contracts and expand its infrastructure will be key factors in determining whether the stock can maintain its upward momentum.
This article is for informational purposes only and does not constitute financial advice.
