Nebius Stock Fell 40% From Its All-Time-High. Is This AI Stock Finally a Buy?

After soaring more than 400% over the past year to $299, Nebius Group (NASDAQ: NBIS) stock has finally pulled back, falling roughly 32% from its peak (as of writing).

For many investors, that naturally raises the question: Is this an opportunity to buy one of the market's fastest-growing artificial intelligence stocks?

While the decline has made the stock more attractive than it was just a few weeks ago, investors shouldn't rush to buy simply because the share price is lower. After all, stocks don't become bargains because they fall. They become bargains when the underlying business improves faster than investor expectations.

That's the question investors should be asking about Nebius today.

Image source: Getty Images.

The business may actually be stronger today

Despite the recent correction, nothing much has changed about Nebius' business.

The company recently reported revenue growth of 684% year over year to $399 million, while its AI cloud business grew an even more impressive 841%. Annual recurring revenue (ARR) reached a run rate approaching $2 billion, and management still expects ARR to reach between $7 billion and $9 billion by the end of 2026.

Those numbers suggest demand for Nebius' AI cloud platform remains exceptionally strong.

The broader industry backdrop also continues to support the company's growth. As enterprises increasingly adopt artificial intelligence (AI), demand for graphics processing units (GPUs) and AI cloud infrastructure remains robust.

The beauty of Nebius's business model is that it isn't building AI models itself. Instead, it provides the computing infrastructure needed to train and run them. In many ways, the company is selling the picks and shovels behind the AI boom.

So, regardless of which model wins eventually, Nebius will own a share of the market.

So why did the stock fall?

If the business continues performing well, why has the stock price declined? The answer, while not straightforward, probably lies in changing expectations.

Following its extraordinary rally, Nebius's stock was priced for near-perfect execution. Investors weren't simply expecting strong growth -- they were expecting the company to become one of the biggest winners in AI infrastructure.

When expectations become that high, even excellent businesses can see their share prices fall. To put it into perspective, the stock still trades at a price-to-sales (P/S) ratio of 58 times despite its recent correction.

In other words, likely, the market wasn't disappointed by Nebius' results. Instead, investors became more selective about how much they were willing to pay for AI infrastructure stocks after months of extraordinary gains.

Besides, there are also legitimate risks. Nebius plans to invest aggressively to expand its AI cloud infrastructure, requiring enormous capital expenditures over the coming years. In the first quarter of 2026 alone, the company's capex was $2.5 billion. While that spending could strengthen its competitive position, it also increases execution risk if AI demand eventually slows or supply catches up.

What should investors do now?

For long-term investors, the recent pullback certainly makes Nebius more interesting than it was a month ago. But it doesn't automatically make the stock a bargain.

One lesson investors should not forget is that an exceptional business and an exceptional investment are not always the same thing. Even great companies can produce disappointing returns if investors pay too high a price.

Instead of focusing on the recent share price decline, investors should watch to see whether Nebius continues to sign long-term customer contracts, expand annual recurring revenue, generate attractive returns on capital, and build competitive advantages beyond simply renting GPUs.

If investors have conviction that Nebius can deliver on those fronts and are willing to tolerate volatility down the road, the recent stock correction could be a starting point to buy shares. Even then, they don't need to rush to load up.

But for the average conservative investor, Nebius's stock remains extremely risky due to its high valuation.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.