3 Overlooked Stocks Poised to Follow Nebius Higher

Nebius (NASDAQ: NBIS) has established itself as the top neocloud stock. Its shares have more than doubled year to date, surpassing CoreWeave (NASDAQ: CRWV) in total market cap.

While Nebius is early in realizing revenue growth from lucrative long-term deals, there are a bunch of overlooked stocks that are poised to follow in Nebius' footsteps. These three stocks are worth considering.

Image source: Getty Images.

Netlist

Netlist (OTC: NLST) isn't a neocloud, but it has a vast intellectual property portfolio that is critical for the AI infrastructure build-out. Multiple tech giants have used Netlist's patented IP without permission, creating the potential for future royalty streams through licensing or litigation.

SK Hynix (NASDAQ: SKHY) agreed to a five-year deal back in 2021, before memory chip demand surged. This deal is subject to renewal, but the bigger news was that Netlist has been targeting industry leaders like Samsung (OTC: SSNLF) and Micron (NASDAQ: MU) for patent infringement.

Netlist had been making solid legal progress, but a major breakthrough occurred this week when Netlist revealed a five-year deal with Samsung. It includes an upfront licensing fee of $239 million, along with up to $32.9 million in quarterly license fees for the next five years. Netlist only has a $1.4 billion market cap, and Samsung bought 10 million shares as part of the deal.

A similar deal may arrive soon for Micron, which is currently on the hook for $445 million for infringing Netlist's patents. Micron is still fighting it in court, but the Samsung deal takes a lot of the air out of that battle.

Netlist also has its own memory products, which heavily contributed to $109.8 million in Q2 revenue. That was a 163% year-over-year increase. It shows that Netlist is more than just a legal lottery ticket and has real fundamentals that can drive momentum, excluding licensing fees.

Cipher Digital

Cipher Digital (NASDAQ: CIFR) technically isn't a neocloud, but it is a close competitor to Nebius. While Nebius offers everything a hyperscaler could need, Cipher Digital just builds AI data centers and includes power.

Customers must bring their own chips to the facility. If they can do that, it's a good match between them and Cipher Digital.

This co-location model is a lot cheaper to set up since Cipher Digital doesn't have to invest in AI chips or a software stack. That means Cipher Digital doesn't have to raise as much capital as Nebius per project, but it will have lower annual recurring revenue from each deal.

Cipher Digital is optimal for customers who want to use their own custom chips instead of exclusively relying on Nvidia's (NASDAQ: NVDA) chips. It's about to bear fruit for Cipher Digital, which announced in a Q2 business update that its 300-megawatt Black Pearl site is delivering some of its data center capacity to Amazon (NASDAQ: AMZN). Cipher Digital starts collecting rent this month, which opens the door to meaningful revenue acceleration.

Cipher Digital also obtained an option for a 900-megawatt site near San Antonio, Texas, showing that it is rapidly expanding its gigawatt pipeline. More gigawatts directly translate into higher annual recurring revenue once Cipher Digital builds the facilities.

Hut 8

Hut 8 (NASDAQ: HUT) is a hybrid that offers neocloud and colocation data centers. It's riding the same tailwinds as Cipher Digital and Nebius while providing more flexibility for hyperscaler tenants.

The company has secured 949 megawatts of contracted IT capacity, which will produce $1.75 billion in net operating income once the sites are completed. The base contract value is approximately $26.6 billion.

Its Beacon Point site is fully commercialized under two 352-megawatt IT leases, showing that Hut 8 can generate revenue upon opening its sites. That type of demand gives Hut 8 a baseline operating income, and it can command higher prices for its future leases. Investors have already been noticing the opportunity, with shares up by roughly 80% year to date, but the fact that AI compute demand continues to grow implies that more gains may be around the corner.

Marc Guberti has positions in Cipher Digital and Netlist. The Motley Fool has positions in and recommends Amazon, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.