Is the AI stock bubble about to burst? Nebius Group (NBIS) has been on a tear, with its shares soaring over 400% in the past year. This surge is fueled by a series of impressive announcements, including a $2 billion investment from Nvidia and multi-billion-dollar deals with Meta and Microsoft. However, as an expert commentator, I argue that this stock is priced for perfection and may be overvalued. While the company's growth is undeniable, with revenue skyrocketing 684% in the first quarter, the question remains: is it a buy or a bubble? Let's delve into the details and explore the implications.
A Skyrocketing Business
Nebius's recent results are indeed breathtaking. The company's first-quarter revenue grew by a staggering 684% year-over-year, with the AI cloud business alone accounting for 98% of its revenue. This is an acceleration from the previous quarter's 547% growth. The annualized run rate revenue hit $1.92 billion at the end of March, up more than 50% from just three months earlier. Moreover, profitability is improving, with adjusted EBITDA swinging to a $130 million profit from a $54 million loss a year ago. These numbers are impressive, to say the least.
Impressive Customer Roster
Nebius's customer list is a who's who of tech giants. The company signed a $27 billion agreement with Meta, a $17.4 billion deal with Microsoft, and a $2 billion equity stake from Nvidia. These partnerships are a testament to the company's position in the AI ecosystem. However, as an analyst, I find it intriguing that so much revenue is tied to a single hyperscaler, Meta, with capacity delivery only starting in early 2027.
A Stock Priced for Perfection
With its torrid year-to-date gain, Nebius now commands a market capitalization of about $55 billion. Even at the midpoint of management's 2026 revenue guidance, the company trades at roughly 17 times forward sales. This valuation assumes ambitious targets, leaving little margin for error. The bigger concern is the capital spending required to sustain this growth. Management recently raised its 2026 capital spending plan to $20-25 billion, up from $16-20 billion, which is an enormous outlay for a company still posting losses.
Funding the Future
How will Nebius fund this spending? The company plans to use asset-backed debt secured against the Microsoft and Meta contracts, potential corporate debt, and an at-the-market equity program. However, as an investor, I am wary of the execution risk and shareholder dilution that come with such large-scale capital raising. The question remains: can Nebius maintain its impressive execution while scaling into a backlog that will require tens of billions in additional spending?
The Bottom Line
In my opinion, Nebius is a stock priced for perfection. While the company's growth is undeniable, the valuation leaves little room for error. I would prefer to stay on the sidelines, as the long-term opportunity in AI infrastructure is significant, but the current price seems to already price in a great deal of future success. With so much optimism baked into the price, I'd rather wait for a more attractive entry point. The AI stock bubble may be about to burst, and it's best to be cautious in such a volatile market.
