nbis stock: trading down and a potential split
[Generated Title]: Nebius Group: Hype Train or the Real Deal? A Data-Driven Reality Check
Nebius Group (NASDAQ:NBIS) is undeniably having a moment. The stock's up 347% this year, and a cool 500% since its Nasdaq resurrection. But let's pump the brakes for a minute. Before we crown it the next AI king, a little data-driven skepticism is in order.
Parsing the AI Narrative
The company, formerly known as Yandex N.V., successfully shed its Russian skin and rebranded as an AI cloud computing platform. Smart move, given the current market frenzy. They're hawking access to Nvidia GPUs via their cloud platform. It's a solid business model, assuming they can deliver. They secured a massive five-year, $19.4 billion deal with Microsoft to provide GPU capacity for Azure, which sent the stock soaring. We're talking a 200% jump after the announcement.
But here's where things get interesting. Management repeatedly said they aimed to reach a $1 billion annual recurring revenue (ARR) run rate by December. Given the Microsoft deal, that target is, shall we say, stale. The question now is: what's next? Are they resting on their Microsoft laurels, or actively pursuing other hyperscalers like AWS or Google Cloud Platform?
And this is the part of the report that I find genuinely puzzling. The company reported $105.1 million in revenue for the second quarter, up 625% year-over-year. That’s impressive growth. But the gross margin? A deeply concerning -2007.45%. Yes, that’s a negative two thousand percent. I’ve looked at hundreds of these filings, and this particular gross margin is unusual.
That means they're spending over twenty dollars for every dollar they bring in. Now, I understand growth requires investment, especially in capital-intensive areas like AI infrastructure. They've been building data centers like crazy, with projects in New Jersey, the UK, Israel, and Finland. They're aiming for 1 gigawatt of cloud computing capacity by next year. But burning cash at this rate is unsustainable, even with the Microsoft money.
Management claims they achieved profitability on adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Okay, fine. But EBITDA is a highly massaged metric. It conveniently ignores a whole host of real expenses. The real question is: when will they achieve actual profitability?
Institutional vs. Retail: A Tale of Two Investors
Institutional investors hold about 21.9% of the stock. Orbis Allan Gray Ltd. owns a significant chunk – 17,651,930 shares, worth $976.681 million. Other players like Invesco Ltd. and Fred Alger Management LLC have also taken positions. This suggests some level of institutional confidence.
However, there's also a strong retail investor element at play here. As one analyst put it, Nebius has become a "darling of the retail investing community." That means it's potentially more vulnerable to hype and day-trader volatility. Momentum stocks can be exhilarating on the way up, but they tend to crash harder when the tide turns.
One thing to remember is that Wall Street analysts have a consensus rating of "Buy" with a target price of $91.20. That’s a significant discrepancy, considering the stock is trading around $120.47. The Goldman Sachs Group reaffirmed a "buy" rating with a $120 price target. BWS Financial boosted their price objective from $90 to $130. So, Wall Street is mixed.
The Motley Fool analysts identified what they believe are the 10 best stocks for investors to buy now… and Nebius Group wasn’t one of them. Ouch.
The Hype Needs a Reality Check
Nebius is riding the AI wave, and they've secured a major deal with Microsoft. But the negative gross margins are a glaring red flag. The dependence on a single customer (Microsoft) creates a significant risk. The stock's meteoric rise may be fueled more by hype than by solid fundamentals. It’s like a rocket ship fueled by pure adrenaline – exciting, but not exactly reliable for a long-term voyage. I’d like to see them diversify their customer base, get their costs under control, and demonstrate a clear path to sustainable profitability. Until then, I'm staying on the sidelines.
