Investment Brief: Nebius Group

NBIS Business Overview, Financial Profile, and My Take

Business Overview

Nebius Group (NBIS) is an upstart AI infrastructure company. It is vertically integrated; designing its own data centers, building its own racks, procuring its own compute, and deploying its own AI software layer. This requires core competencies spanning several verticals, something garnered through the company's previous life as Yandex. The core AI infrastructure business currently maintains data centers in Finland, France, a pilot deployment in Kansas City, and an H200 cluster in Iceland. Most of the company's 38,000 GPUs are H200s, but the company has secured Blackwell allocation from Nvidia. The Blackwell clusters will initially be in the US and are expected to begin deployment in 2025. The company likely grappled with a hesitance to sign longer-term contracts in 2024 as customers anticipate the industry-wide rollout of Blackwell GPUs in 2025.

Standing up its Blackwell data center will be a key strategic priority for Nebius to expand pricing power, secure longer-term contracts, and attract performance-hungry AI developers. Despite its lack of scale and brand-recognition in the US, I see Nebius' core opportunity in 2025 with AI startups. Upstarts will be attracted to Nebius' smaller size relative to hyperscalers as this affords them more white-glove service compared to being a tiny fish in the AWS, GCP, or Azure oceans. For this reason, I actually see the company's small size as a distinct advantage during the mass rollout of Blackwell capacity.

Management claims a cost advantage over Neocloud competitors chiefly because of its vertically integrated full stack. Within this stack, there are four main components: operating the data center, designing and building GPU racks, an AI specific cloud platform, and value-added services like development tools and inference-as-a-service. Nebius Cloud AI offerings Interconnect.blog Management elaborated on the full stack in the most recent earnings call (emphasis added):

For us, it's really four main components. The first one is our ability to leverage our experience in building and operating data centers, specifically with high power intensive workloads that we see across the AI landscape. We are experts at building high PUE or power use efficiency and laying the foundation of our cost advantage amongst our Neo Cloud peers... With that, we couple our expertise in developing our own hardware, from servers, racks, motherboards, cooling. This gives us a massive advantage in terms of our ability to provide the most cost-effective solution on the market. And then we couple that with a third component, which is the AI specific cloud platform that we've built from the ground up and built it in a way that is targeted and bespoke to AI workloads. And this is what helps us deliver the flexibility and reliability that our customers need, especially as they're looking to providers to help them navigate the sometimes choppy waters of deploying AI infrastructure. And then the last component are the value-added services. This helps us extend the economic life of our GPUs and extends a greater value well above a pure bare metal offering. In turn, this gives us a better and enhanced way to return -- to create a return on capital invested and also creates new revenue streams for the company that enable us to command software-like margins... Going forward, we think pure bare metal offerings will become more commoditized, and it's our investments now across a full stack, especially at the top end of the stack, that are going to pay the biggest dividends in the mid to long term.

The company developed much of this expertise through its prior life as Yandex, a Russian tech conglomerate. Yandex was known as the 'Google of Russia' but was delisted from the Nasdaq following the 2022 Russian invasion of Ukraine. Management later divested the Russian business, raising much of its current $2.4b cash pile in the transaction, and moved its headquarters to Amsterdam. Nebius emerged from this shuffle and was re-listed on the Nasdaq in 2024 under ticker NBIS. Nebius is led by the Yandex founder-CEO Arkady Volozh, a Russian national who moved to Tel Aviv, Israel in 2014. Following the start of the war, Volozh was placed on the EU sanctioned persons list, but was later removed after publicly condemning the invasion. Nebius does not conduct any business within Russia or with Russian entities, greatly reducing any tail geopolitical risks inherent in an investment in the company. The Nethlerands and Israel are both geopolitically aligned with the West, something that is very important for Nebius to avoid sanctions, mitigate tariff impacts, and penetrate the US market.

Beyond the core AI business, Nebius has three other key segments that are also experiencing solid growth and offer promising potential.

Avride is an autonomous vehicle service, which is seeing very promising tailwinds. In 2024, it secured partnerships with Grubhub and Uber Eats (UBER) for autonomous food delivery services. The Grubhub partnership will see initial deployment of food delivery robots on the campus of The Ohio State University with further expansions likely after the initial pilot. The Uber partnership includes a similar deal with food delivery robots in Austin, Dallas, and Jersey City taking orders for Uber Eats.

Toloka is a data training platform for Generative AI and grew sales by 140% in 2024. Toloka accelerates AI training timelines by providing important services like data labelling and red teaming for AI agents. Data labelling is an important step in model development to make training data a consistent format. Red Teaming refers to the process of simulating potential misuse or adversarial attacks in AI system training. It helps to prevent harmful outputs, to mitigate model bias, and to ensure compliance with evolving regulations.

Finally, TripleTen is an educational tech service that seeks to re-skill workers for the AI era. Enrollments doubled in 2024.

Nebius also owns a 28% stake in ClickHouse Inc., a company commercializing the popular open-source database ClickHouse​. ClickHouse is widely used in analytics and could IPO or be acquired in the future – Nebius’s stake could become quite valuable at that time (ClickHouse was valued at ~$2B in 2021 and has grown since).

Nebius has several factors that give promise of rapid growth. The investment comes with the enormous risk inherent in any upstart in a new and evolving market, but Neoclouds have very real product market fit in the current AI landscape. The successful stand-up of the Blackwell AI factory (with 22,000 Blackwell GPUs expected) in the US is the key strategic milestone for investors to watch for in 2025, while top-line growth remains the most critical factor for investment success. The company still has a long way to profitability, but I see this as a speculative buy currently.

Recent market volatility has brought the stock back down to IPO levels with the company currently valued at about $5b, but the stock eclipsed $10b briefly in February. The market has demonstrated its willingness to assign premium multiples to AI names, so a decline in volatility and improved investor sentiment throughout 2H 2025 stand to greatly benefit Nebius stock.

Financial Overview

Nebius achieved a 37% gross margin in fiscal 2024 on $117.5m in sales. For fiscal 2025, managed believes it can achieve $750m-$1b in annual revenue run rate. Let's assume the company eats into some of its margin to win deals, achieving the low-end of net sales guidance at $500m on a 30% gross margin. This would bring estimated gross profit in fiscal 2025 to $150m.

In 2024, operating expenses (product development + SG&A) reached $407.5m, or 347% of sales. Assuming the company can drive some operating leverage to bring this figure down to 325% of sales, estimated 2025 OpEx would be $1.63b. This would widen the company's operating losses to $1.48b. Further, assuming depreciation expense ticks up 20% from $80m to $100m (as the company stands up its Blackwell racks and further expands existing capacity), total net loss in 2025 would be an estimated $1.58b in fiscal '25.

The company has a very comfortable cash position of $2.49b as of December 31st, 2024, but it would eat away most of its cash in this scenario. Importantly, the company does not have a meaningful amount of debt, so its net interest income was $63.6m in 2024. This is a nice, safe backup stream of revenue that helps ease liquidity and solvency concerns.

Overall, this is a very solid base for an upstart phase company to jump from. Nebius raised $700m in an oversubscribed offering that most notably included Nvidia (NVDA) as an investor. This is a critical vote of confidence in a small AI infrastructure company and sets the company up very well to secure allocation of Nvidia's leading edge chips for years to come.

Nebius is a neocloud, a term used to describe cloud services that are purpose-built for AI. They are GPU first data centers that need not grapple with the complexity of integration within existing CPU-first infrastructure. However, this will result in enormous capitalization costs that will drag net margins for several years. The company's demand profile is linked to the ongoing surge in demand for AI compute that hyperscalers haven't been able to satiate.

Investor Takeaway

Despite the promising potential of the company, investment in Nebius stock still carries with it plentiful risk. The AI infrastructure industry will long remain dominated by the hyperscalers that are rewarded with by far the highest GPU capacity. Nebius lacks name-brand recognition and doesn't have any wins of major enterprise customers. Winning major customers could skyrocket the stock but subsequently losing them could quickly ruin sentiment quickly. There will likely be several years of heavy revenue concentration and should the company miss top line guidance at all, the resulting multiple contraction would eviscerate investor capital.

Still, this is a solid opportunity despite the risks. The market, alongside the AI play, has been beaten down recently due to volatile US trade policy and the DeepSeek scare. These factors matter little to the long-term growth runway of AI infrastructure unless exorbitant tariffs cause the global economy to tumble into a recession.

I maintain the belief that cooler heads will prevail. The long-term damage that the current reciprocal tariffs would cause could be catastrophic to the global economy, so both the US and global leaders have compelling incentives to quickly negotiate fair deals. I believe the market is generally too fearful on the current heightened uncertainty and will rebound as trade deals begin to hit the tape. The setup for the start of a new positive news cycle here is compelling enough to justify 'buy the dip' recommendations broadly, with high beta stocks like Nebius offering particularly exceptional accumulation opportunities.