CoreWeave vs. Nebius: Which Is the Better AI Neocloud Stock to Own for the Next 3 Years?
Key Points
CoreWeave has more current liabilities than current assets, so it will have to raise more money or refinance its debt to keep up with expenses.
Nebius has a better financial foundation due to high prepayments.
Nebius has less of its capacity tied up to long-term deals, which gives it more exposure to rising megawatt prices.
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CoreWeave (NASDAQ: CRWV) and Nebius (NASDAQ: NBIS) are at the center of artificial intelligence's (AI's) biggest bottleneck. Hyperscalers are sitting on excess chips and now need enough land and power to plug in all of those chips.
Neoclouds like CoreWeave and Nebius address this problem, but when it comes to picking a stock, the answer is pretty clear. Nebius is the better buy for investors who have three-year time horizons.
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CoreWeave has short-term financing challenges
CoreWeave recently grabbed headlines when its corporate bonds briefly touched 15% APR. That's the bond yield in secondary markets, so CoreWeave isn't paying that rate right now. However, the high rate will become relevant as more debt becomes due.
CoreWeave has a 0.46 current ratio, so the company will have to refinance some of its debt soon. That refinancing explains why the 15% rate is a big deal. If CoreWeave ends up with that rate when it refinances, its expenses can get a lot higher.
Nebius has a far more attractive 4.03 current ratio, which means it can keep up with current liabilities using cash and other current assets. Nebius also finances 50% to 60% of its capital expenditures by customer prepayments, which makes it less reliant on other financing sources. While Nebius still has to take out loans and issue bonds occasionally, the prepayments help and can offer a bridge as the company realizes more of its backlog.
Unsigned capacity has become more valuable than signed deals
Nebius and CoreWeave have both highlighted unprecedented demand for neocloud capacity. CoreWeave wrapped up its second quarter with a $104.2 billion backlog, showing how much demand has grown. That doesn't even include $25 billion in new customer commitments that were added early in the third quarter.
Nebius' Q2 shareholder letter illustrates why that backlog isn't as good as investors think. In that letter, Nebius revealed that it went from charging $12 million per megawatt to securing deals above $20 million per megawatt. Short-term deals are even better, commanding between $40 million and $50 million per megawatt.
The price per megawatt continues to climb, but that's only advantageous for neocloud stocks with available capacity. Since CoreWeave has already tied up most of its capacity to long-term customers, it's not in a good position to capitalize on higher megawatt prices. Meanwhile, Nebius can immediately set higher prices thanks to its available capacity and a mix of short-term deals that must be renewed or canceled within a few months.
Rising megawatt prices make it easier for neocloud providers to break even and profit from their AI data centers sooner. Capital expenditures are also going up, and that can further squeeze CoreWeave financially. Nebius is in a better position to command higher megawatt prices and keep up with rising costs.
Nebius will eventually out earn CoreWeave
One of the few things CoreWeave has going for it is that the company generates more revenue than Nebius. CoreWeave brought in $2.6 billion in Q2, while Nebius delivered $582.3 million in sales.
While CoreWeave has the lead right now, growth rates indicate what's coming. CoreWeave's sales were up by 112% year over year, but Nebius reported a superb 454% growth rate. Nebius has a good shot at closing the gap as it signs more deals at elevated megawatt prices.
The annual recurring revenue (ARR) projections indicate that Nebius is closing the gap. While their respective Q2 revenue numbers give almost a 5x edge to CoreWeave, the annual recurring revenue projections only give CoreWeave a 2x advantage.
Nebius anticipated up to $9 billion in ARR to wrap up 2026 back in the first quarter, before contracts got more lucrative. CoreWeave projects $18.5 billion to $19.5 billion in year-end ARR.
If the gap continues to close in future years, it stands to reason that Nebius will deliver higher revenue numbers than CoreWeave. More investors are noticing this based on Nebius reaching a higher market cap than CoreWeave, and that gap should continue to expand as Nebius extends its yearlong rally.
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Marc Guberti 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.
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