This Under-the-Radar AI Stock Could Be a Better Buy Than Nvidia

Nvidia (NASDAQ: NVDA) has become the measuring stick that many artificial intelligence (AI) investments are compared against. It's a stalwart that has grown over the last several years to become the world's largest company by market cap, and it continues to post jaw-dropping results. If a stock can't outperform Nvidia, there's not a ton of reason to consider it, because Nvidia is a fairly safe pick in the AI realm.

However, I think I've pinpointed a stock that could deliver greater returns than Nvidia going forward. In fact, Nvidia itself likely believes in this company because it's now a substantial investor.

The company? Nebius (NASDAQ: NBIS).

Image source: Getty Images.

Nebius and Nvidia are partners

According to SEC filings released this month, Nvidia has warrants to buy or it already outright owns a little over 22 million Class A shares of Nebius, valued at $2.1 billion. That amounts to a roughly 7.7% to 8.3% stake in Nebius, assuming a full conversion of warrants. While that's not a lot in the grand scheme of Nvidia's business, the ownership shows that it's confident in its future.

Nebius is an AI-focused cloud computing company that has partnered with Nvidia to gain access to cutting-edge technology first. This makes Nebius the go-to partner in the AI realm, and it already has two massive deals with Meta Platforms and Microsoft. Nebius is also a popular choice for AI start-ups and individual users due to its full-stack offering, which gives users everything they need to train and run an AI model.

This popular offering has led to impressive growth. During the fourth quarter, Nebius' revenue rose 547% year over year to $228 million. Its core AI business delivered even better results, rising 802% year over year to $214 million. By the end of this year, management expects annual recurring revenue between $7 billion and $9 billion, up from $1.25 billion at the end of 2025. That's an unbelievable growth rate, and it is far superior to the growth that Nvidia is projecting.

While Nebius hasn't provided any 2027 guidance, Wall Street analysts believe its revenue should nearly triple again next year. Nebius is exploding onto the AI computing scene, and with its impressive growth, it could be one of the best investments in the sector.

However, there's one catch. Building data centers and filling them with chips isn't easy. It's also not free. So, Nebius is operating at a major loss to fund this buildout. With the massive AI computing opportunity emerging over the next few years, this trade-off is acceptable in the short term. The question is, what will Nebius' margins look like over the long term? If it can match the margins of some of the larger cloud computing players, it will be a huge winner. If it can't, it may be a disappointment.

Time will tell what its final operating profile looks like, but right now, its growth is incredible. That's why I've taken a small position, just in case it does pan out.

Keithen Drury has positions in Meta Platforms, Microsoft, Nebius Group, and Nvidia. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.