Microsoft's Recent Move Offers AI Data Center Stock a Bumper 17.4 Billion Incentive for Investors, Encouraging Them to Snap It Up Aggressively
Nebius Inks Major Infrastructure Deal with Microsoft, Positions Itself as a Key Player in AI Infrastructure
In a significant move, Nebius Group, a leading player in the GPU-as-a-service landscape, has secured a $17.4 billion infrastructure agreement with tech giant Microsoft. This agreement positions Nebius alongside industry heavyweights like Oracle and CoreWeave in the AI infrastructure conversation.
The Microsoft deal serves as a validation of Nebius' technology, demonstrating that it is robust enough to meet the standards of a hyperscaler. This partnership is expected to add approximately $3.5 billion annually to Nebius' Annual Recurring Revenue (ARR), if the commitment is evenly spread across five years. However, it's important to note that comparing Nebius' future ARR to Oracle's and CoreWeave's current revenue base may not be an apples-to-apples match, given the different stages of their growth.
Nebius shares have surged roughly 39% since announcing its partnership with Microsoft, reflecting the market's positive response to the news. The company's pro forma ARR is closer to $4.6 billion, suggesting a strong financial position. Nebius stock trades at an implied forward price-to-sales (P/S) ratio of 4.6, indicating that it may be attractively valued relative to its peers.
The demand for GPUs, primarily from Nvidia and Advanced Micro Devices, is supply-constrained, as they are absorbed by large companies. By offering GPUs as a service, companies can rent chip capacity through cloud infrastructure, providing a more flexible and scalable solution.
The AI industry is witnessing a structural shift, with enterprises deploying applications into production at unprecedented speed, workloads scaling rapidly, and new use cases emerging in areas like robotics and autonomous systems. Oracle and CoreWeave are gaining attention in the AI industry, focusing on providing cloud-based access to GPUs. However, the viability of some of these agreements, such as Oracle's reported $300 billion cloud deal with OpenAI, is questionable due to OpenAI not having the cash on its balance sheet to fully fund them.
Founded and led by Arkady Yuryevich Volozh, a Russian businessman and technology entrepreneur who previously co-founded Yandex and other IT companies, Nebius is now winning significant business alongside its brand-name peers like Oracle and CoreWeave. For Microsoft, the partnership secures adequate compute resources without stretching internal infrastructure or assuming upfront capital expenditure budget and execution risks.
While Nebius presents a compelling buy and hold opportunity as the AI infrastructure narrative continues to unfold, it's crucial to consider important caveats such as customer attrition over the next several years. The landscape is evolving quickly and riddled with moving parts, making it essential for investors to stay informed and adapt to the changing dynamics.
