Nebius Stock vs. CoreWeave Stock: Which AI Infrastructure Player Has More Upside?

TradingKey - The demand for artificial intelligence infrastructure has surged into one of the hottest areas within technology and continues to drive increased investment in companies providing the underlying computing resources necessary for today's AI applications.

There are a number of up-and-coming companies attempting to establish themselves as major players in the GPU powered cloud infrastructure marketplaces. Two of these companies are CoreWeave and Nebius whose primary business is to provide AI developers with GPU based cloud services.

While both Nebius stock(NBIS) and CoreWeave stock(CRWV) have enjoyed an uptick associated with demand for resources to train and deploy machine learning models during the past few months, it appears that Wall Street may have different near-term growth expectations for both companies due to their respective positioning and competitive advantages.

AI Infrastructure Provider Emergence

Growth in AI has created much higher-than-expected demand for GPUs (who have the specific ability to run an AI algorithm) then some expert could have ever imagined. As a result, many companies (inside and outside of the tech sector) no longer purchase hardware due to large spend (one fantasy), instead, they rent through Cloud Providers access to "GPUs as Service" (GaaS).

As a direct result of both the nature of AI and the growing hyperscalers, there is an entire new infrastructure provider segment that has come into the marketplace focused specifically on AI workloads only. Example companies like Nebius & CoreWeave that have the ability to provide "GPU Computing" capacity for AI/ML workloads rather than traditional cloud-based workloads.

As the AI Developer Community requires large amounts of computing power to build large models, this has resulted in the rapidly increased demand for these type of cloud platforms in addition to gaining traction from institutional and venture capital investors.

Why CRWV Stock Has Gained Momentum

The rapid growth of CRWV shares is due to the company positioning itself early on as an AI Cloud Infrastructure that is dedicated to servicing AI workloads created specifically on high-performance NVIDIA GPUs. CRWV has a solid partner in NVIDIA since they are a direct investor in CoreWeave and have provided continuous support to CoreWeave through providing them early market access to the latest NVIDIA GPU architecture.

This partnership has created a strong competitive advantage for CoreWeave because when AI developers develop new products, they typically want to acquire new hardware to help accelerate the training of their models. By giving CoreWeave access to new NVIDIA technology prior to the general market, CoreWeave can attract developers looking for the highest level of performance from their hardware.

As we can see from the tremendous revenue growth that CoreWeave has experienced, including quarterly year-over-year revenue growth of over 400% in many instances, this partnership is instrumental in allowing CoreWeave to continue establishing itself as an established leader of the foundational "picks-and-shovels" for the AI Economy.

The rapid growth of Nebius Shares

Similar to CoreWeave, Nebius shares a relationship with the increasing need for computing on the cloud for AI. Nebius was established as a company that sells computing capacity to AI developers and serves as a provider for managed services that allow machine-learning platforms to operate, and therefore have grown exponentially with quarterly revenues reported at greater than 600% within the last quarter.

As a result of the growing need for AI computing, Nebius has increased its revenue guidance to an estimated range of $900 million - $1.1 billion.

Strategic partnerships and receiving business from large established high-technology companies have allowed Nebius to expand and increase the interest from its investors in its Shares.

View of WST on Nebius Stock and CRWV Stock

Even though each company has performed well overall, there is much better growth expected by analysts over the next year for Nebius (approximately 23%) than CRWV (approximately 6%). However, some analysts are much more bullish on both stocks than their average estimates with projected price increases between 60% and 75% for the two companies through the end of 2023 under optimistic assumptions. As a result, the widely differing estimates illustrate the current uncertainty with respect to valuation within this rapidly changing AI infrastructure industry.

The Risks Behind AI Cloud Stocks

Both Nebius and CoreWeave have strong outlooks for growth but operate in a capital-intensive industry. Building and running an AI data center requires a lot of money for hardware, power supplies, and networks.

Companies in this sector can also lose more than they gain when they're building out their data-center capacity and buying GPUs, as they may spend billions on these technologies before becoming profitable.

Furthermore, the threat of increased competition from hyperscale cloud providers like Amazon Web Services, Microsoft Azure, and Google Cloud is also likely to increase over time.

Customer concentration is another risk. If a company derives a large part of its revenue from only one or two major customers, any change in these relationships can directly affect the company's bottom line.

Key Indicators to Watch When Considering Investing

When determining whether or not to invest in nebius stock and crwv stock, it is important for investors to look at the rate of growth of demand for AI Infrastructure. Given the rapid growth in both generative AI models and companies adopting AI into their business operations, demand for computational power could remain strong for many years. 

However, the companies that can efficiently grow their infrastructure and maintain strong relations with chip suppliers and major AI companies will emerge as the victors within this marketplace.

Nebius and CoreWeave both appear well positioned to take advantage of the boom of AI Infrastructure. However, due to the fact that the sector is still very volatile and capital intensive these stocks may only be appropriate for those investors who have a very high-risk tolerance and who take a long-term view on the future of artificial intelligence.