Why Nebius Group Stock Just Gained 26%
Key Points
Nebius stock is rallying alongside the broader tech sector after Microsoft and Meta earnings signaled continued strong demand for AI compute and data center capacity.
Microsoft reported signing over $130 billion in new data center leases and plans to double its data center capacity within two years.
While the AI infrastructure boom benefits Nebius, investors should weigh the company's premium valuation and debt-heavy growth strategy.
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Nebius Group N.V. (NASDAQ: NBIS) stock was up 26.9% as of 3:05 p.m. ET Thursday. The S&P 500 and the Nasdaq Composite were up 1.6% and 2.7%, respectively.
Shares of the AI neocloud are rising along with much of the tech market, recovering from yesterday's sell-off. Quarterly results from Microsoft and Meta Platforms that pointed to still-strong demand for data center capacity have allayed fears that spending might start drying up.
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Microsoft and Meta signal AI spending isn't slowing down
Microsoft reported earnings after Wednesday's close, saying it signed more than $130 billion in new data center leases during the quarter, a jump of over two-thirds from the prior quarter. CEO Satya Nadella said the company is on pace to roughly double its data center capacity within two years, with 31 new data centers coming online in the quarter alone. Sales for Azure, its cloud business, grew 43% year over year.
While Meta's results were lackluster, they still revealed strong demand for compute. CEO Mark Zuckerberg addressed the dilemma on how much to use the capacity it has built internally and how much to sell externally, given his company is "getting a lot of offers for compute at a significant premium over what we paid for it."
Image source: Getty Images
What this means for Nebius -- and why I'm still cautious
All this is good news for Nebius -- which makes money by selling access to AI compute -- especially coming on the heels of a new $1 billion compute deal announced earlier this month. That being said, I'm not a fan of the stock given its valuation and the company's reliance on expensive debt to fuel growth.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.
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