Nebius signed a big deal with Microsoft last month.
Now, market watchers are wondering if recipients of big tech spending plans might be in a bubble.
Nebius Group stock may have gotten ahead of itself.
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Shares of artificial intelligence (AI) infrastructure company Nebius Group (NASDAQ: NBIS) have taken off this year. The stock has quadrupled year to date as its AI neocloud services have caught the attention of leading big tech companies.
But things may have gone a little too far, too fast. Talk of an AI bubble has Nebius shares sinking today. As of 3 p.m. ET, Nebius shares were lower by 7.8% today as headlines take aim at unprofitable companies like Nebius.
Nebius announced a multibillion-dollar deal with Microsoft in early September. The stock more than doubled in just a month since then. The Microsoft deal is one of several that has led Nebius to increase its annualized run rate revenue (ARR) guidance for the year. If these deals play out, Nebius will undoubtedly be a more valuable company than it was without those prospects. But it remains a story stock until that AI infrastructure spending comes to fruition. After all, while revenue is rising, profits have yet to be made.
Market watchers are calling that out, and that is hitting Nebius shares. The examples are many. Forbes, for example, published an article on Wednesday stating the “AI bubble may burst.” A CNBC article today noted that “fears of an AI bubble are growing.” Meanwhile, a USA Today article said, “Stocks may be in an AI bubble. Is it time to hoard cash?”
Investors may very well have gotten a bit overexcited about Nebius stock. Even with its recent pullback, the market cap remains over $28 billion. Looking ahead, management has guided investors to expect ARR of about $1 billion for the year. That price-to-sales (P/S) ratio of about 28 isn’t sustainable. Either revenue will have to continue to explode next year, or Nebius stock will pull back. The latter is what is continuing to occur today.
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