Executive Summary / Key Takeaways

• Transformative AI Pure-Play: Nebius Group has rapidly transitioned from its Yandex roots into a specialized, full-stack AI infrastructure provider, validated by hypergrowth and a landmark $17.4 billion agreement with Microsoft (MSFT), positioning it as a critical enabler of the global AI revolution.
• Differentiated Full-Stack Technology: The company's proprietary custom hardware, AI-specific cloud platform, and advanced software stack offer tangible benefits like 20% lower total cost of ownership for data centers and a 5% improvement in available GPU nodes, providing a significant competitive moat and driving higher margins.
• Accelerating Financial Momentum: Nebius achieved a remarkable 545% year-over-year revenue growth in H1 2025, with its core AI business turning Adjusted EBITDA positive in Q2 2025 ahead of schedule, demonstrating strong operational discipline amidst aggressive capacity expansion.
• Ambitious Growth Trajectory: Management has raised its year-end 2025 Annualized Run Rate (ARR) guidance to $900 million-$1.1 billion and targets mid-single-digit billions in midterm revenue with 20-30% EBIT margins, underpinned by securing over 1 gigawatt of power capacity by 2026 and the deployment of next-generation Blackwell GPUs.
• Strategic Capital Deployment & Diversified Assets: With a strong balance sheet and access to billions more from monetizing non-core assets like ClickHouse and Toloka, Nebius is efficiently funding its $2 billion 2025 CapEx, minimizing dilution while aggressively scaling its global AI infrastructure footprint.

The AI Infrastructure Revolution and Nebius's Emergence

The artificial intelligence revolution is fundamentally reshaping industries, driving an unprecedented demand for specialized computing power. At the heart of this transformation is Nebius Group N.V. (NASDAQ:NBIS), a company that has rapidly emerged as a pivotal player in building the foundational infrastructure for AI. Nebius is a full-stack AI infrastructure provider, delivering high-performance GPU clusters, a proprietary cloud platform, and advanced tools for AI model training and inference. This strategic focus positions it as a critical enabler of the global AI industry.

Nebius's journey is one of remarkable transformation. Originating from Yandex N.V. (YNDX), a technology giant with decades of R&D experience, the company underwent a significant divestment of its Russia-based businesses in 2024. This strategic pivot allowed Nebius to rebrand and re-list on Nasdaq in October 2024 as the first publicly traded AI-specialized cloud provider. This history of building and operating hyperscale infrastructure, honed over years, now directly informs its aggressive strategy to capture the burgeoning AI market. The company’s global footprint, with R&D hubs across Europe, North America, and Israel, underscores its ambition to serve a worldwide market.

The industry landscape is characterized by surging demand for GPU compute, with NVIDIA's (NVDA) CFO Colette Kress projecting between $3 trillion and $4 trillion in AI infrastructure spending by the end of the decade. This massive market opportunity is attracting significant investment, and Nebius is positioning itself to be a primary beneficiary. Its core strategy is to provide a neutral, flexible, and highly optimized alternative to the broader cloud ecosystems offered by hyperscalers, appealing to AI-native startups and enterprises seeking dedicated, conflict-free AI compute. This specialized approach, combined with a disciplined capacity expansion plan, forms the bedrock of its investment thesis.

Technological Moat: The Full-Stack Advantage

Nebius Group's competitive edge is deeply rooted in its vertically integrated, full-stack AI technology. This approach distinguishes it from many competitors by controlling every layer of the AI infrastructure, from data centers and custom hardware to an intelligent software platform and value-added services. This comprehensive control translates into significant tangible benefits for its customers and its own operational efficiency.

The company's custom-designed hardware, encompassing servers, racks, motherboards, and cooling systems, is a cornerstone of its differentiation. This in-house expertise allows Nebius to achieve a lower total cost of ownership for its data centers, estimated to be around 20% less than the market average for greenfield sites. This cost efficiency is crucial in a capital-intensive industry and directly impacts profitability. Furthermore, its focus on high Power Usage Effectiveness (PUE) in data center operations enhances sustainability and reduces operational expenses.

At the software layer, Nebius has developed an AI-specific cloud platform built from the ground up for intensive AI workloads. This platform offers superior speed, reliability, and flexibility. For instance, the company has doubled its network speed, directly impacting MLPerf benchmark results for large-scale model training. Reliability has been significantly improved through features like automatic recovery for failed nodes and proactive system health checks, leading to approximately a 5% improvement in available nodes for commercial use. The platform also includes enhanced object storage, boosting read and write speeds for large datasets during training runs, which reduces time-to-results for clients.

Nebius is also at the forefront of deploying next-generation NVIDIA GPUs, including early access to the Blackwell Ultra AI Factory platform (GB300 NVL72-powered instances) and supporting the NVIDIA DGX Cloud Lepton marketplace. This ensures its customers have access to the most advanced compute capabilities. The development of its Inference-as-a-Service product, AI Studio, further extends its full-stack offering, providing an enterprise-grade platform to deploy and scale open-weight AI models, addressing critical pain points like unpredictable latency and GPU bottlenecks. For investors, this technological differentiation means Nebius can offer a superior, more efficient, and more reliable service, fostering customer stickiness, commanding premium pricing for advanced services, and ultimately driving higher margins and sustained growth.

Hypergrowth and Operational Discipline: A Financial Deep Dive

Nebius Group's financial performance in the first half of 2025 underscores its hypergrowth trajectory and increasing operational discipline. The company reported a staggering 545% year-over-year increase in total revenues, reaching $156.0 million for the six months ended June 30, 2025, up from $24.2 million in the same period of 2024. This surge was predominantly fueled by its core AI infrastructure business, Nebius, which saw its revenues skyrocket by 676% to $135.1 million. This growth was driven by an expanding customer base and ecosystem, facilitated by the extension of data center facilities and a growing installed base of GPUs.

A significant milestone was achieved in Q2 2025, when the core Nebius operating segment generated positive Adjusted EBITDA, ahead of previous projections. This reflects improving operating margins as the infrastructure business scales. While the overall Group still reported an Adjusted EBITDA loss of $74.7 million for H1 2025, this was a notable improvement from a $116.5 million loss in H1 2024, demonstrating a clear path towards group-level profitability. The reported net income from continuing operations of $398.2 million in H1 2025 (compared to a net loss of $185.5 million in H1 2024) was primarily due to a substantial $597.4 million gain from the revaluation of its investment in ClickHouse, highlighting the latent value within its equity stakes.

The company's aggressive expansion is evident in its capital expenditures, which soared by 384% to $1,054.5 million in H1 2025, primarily for GPUs and data center hardware. This investment is crucial for supporting the growth of its core business. To fund this ambitious growth, Nebius has strategically leveraged multiple financing levers. It raised $1 billion through convertible notes in June 2025 and has a strong balance sheet with $1,679.3 million in cash and cash equivalents as of June 30, 2025. Management emphasizes that its non-core businesses and equity stakes, such as Avride, Toloka, and ClickHouse, provide access to potentially billions more in capital, which can be monetized to fund core business growth efficiently and minimize dilution. For example, Toloka's recent growth capital raise led by Bezos Expeditions, while leading to its deconsolidation, allowed Nebius to retain a significant economic interest.

Competitive Arena: Outmaneuvering Giants and NeoClouds

Nebius Group operates in a highly competitive landscape, vying for market share against both established hyperscalers and emerging "neocloud" providers. Its strategic positioning is to differentiate itself as a specialized, full-stack AI cloud, offering a compelling alternative to the broader, more generalized services of giants like Microsoft Azure, Amazon Web Services (AWS) (AMZN), and Google Cloud (GOOGL).

Against these hyperscalers, Nebius offers a distinct value proposition. While Microsoft, Amazon, and Google provide vast ecosystems and deep integration, Nebius focuses explicitly on AI workloads. This specialization allows it to offer shorter contract terms, greater customer data control, and a "zero conflict of interest" stance, which is particularly attractive to AI startups and enterprises wary of hyperscalers potentially developing competing AI models. Nebius's custom hardware and optimized data center design, which can achieve a 20% lower total cost of ownership for greenfield sites, provide a cost advantage in AI-specific compute, potentially allowing it to compete effectively on price for intensive workloads.

In the rapidly evolving neocloud segment, Nebius is actively taking market share from rivals like CoreWeave. Nebius's financial strength, characterized by a robust cash position and a disciplined, demand-driven data center rollout, contrasts with CoreWeave's significant debt load and high client concentration (where 77% of its 2024 projected revenue came from just two clients, with Microsoft alone accounting for 62%). Nebius's diversified client base, spanning European startups, enterprises, and governments, provides greater resilience. Furthermore, Nebius benefits from geopolitical tailwinds, riding Europe's "digital sovereignty" wave and expanding its presence in the UK and Israel with NVIDIA Blackwell Ultra GPU deployments. Its ability to quickly meet unexpected demand spikes, as demonstrated during the "DeepSeek moment" for H200s, highlights the flexibility and efficiency of its AI-focused infrastructure.

While NVIDIA is a key partner and investor, it also represents a competitive force in GPU-focused infrastructure. Nebius's strategy is to integrate NVIDIA's cutting-edge GPUs into its full-stack solutions, offering end-to-end AI services that go beyond bare-metal hardware. This software layer, which management views as a high-margin element, is a critical differentiator, enhancing customer stickiness and accelerating the return on invested capital for its GPU fleet.

Outlook and the Road Ahead: Scaling for Billions

Nebius Group's outlook is one of aggressive expansion and anticipated profitability, driven by a clear roadmap to capitalize on the insatiable demand for AI compute. Management has significantly raised its annualized run rate (ARR) guidance for year-end 2025 to $900 million-$1.1 billion, up from the previous $750 million-$1 billion. This upward revision is based on strong demand and the expected delivery of additional GPU capacity, particularly the next-generation Blackwell Ultras, which will come online primarily in Q4 2025. This timing means ARR will be back-end weighted, creating a robust foundation for accelerated revenue growth in 2026.

The company is aggressively scaling its physical infrastructure, aiming to secure 220 megawatts of connected power by year-end 2025, with 100 megawatts expected to be active. Looking further ahead, Nebius is in the process of securing over 1 gigawatt of power by the end of 2026, a monumental undertaking that underscores its ambition to become a dominant force in AI infrastructure. This expansion includes new data centers in New Jersey (200 MW under construction), Finland (additional 50 MW), the UK, and Israel. The 2025 capital expenditure is projected to be around $2 billion, reflecting this intense investment phase.

From a profitability standpoint, Nebius expects its core AI business to remain Adjusted EBITDA positive throughout the second half of 2025. The entire Group is anticipated to turn Adjusted EBITDA positive by year-end 2025, although it will remain negative for the full year. Management projects group Adjusted EBITDA to be positive starting in 2026. The midterm outlook is even more compelling, with targets of mid-single-digit billions in revenue and EBIT margins ranging from 20% to 30%. This profitability is expected to be driven by the scaling of its AI cloud business and an increasing mix of higher-margin software and services revenue.

Beyond its core AI infrastructure, Nebius's other business units and equity stakes contribute to its long-term growth story. Avride, its autonomous driving technology business, is expanding rapidly, with partnerships for delivery robots (Uber (UBER), Grubhub, H-E-B) and plans to launch robotaxi services with Uber later in 2025. TripleTen, the edtech platform, continues to see strong student enrollment growth. The company views its stakes in Toloka and ClickHouse as significant potential sources of future capital, which can be monetized to fund further growth.

Investment Risks: Confronting the AI Frontier

Investing in Nebius Group, while offering substantial upside, is not without its risks, inherent in the hypergrowth and capital-intensive nature of the AI infrastructure sector. The company's aggressive capacity expansion plans, particularly the target of securing over 1 gigawatt of power by 2026, carry significant execution risk. Delays in energy procurement, grid approvals, or facility buildouts could constrain growth and impact investor confidence, especially given the demand for uninterrupted compute from hyperscale clients.

The substantial capital expenditures, projected at around $2 billion for 2025, necessitate continuous access to funding. While Nebius has a strong balance sheet and diverse financing levers, including recent convertible note issuance, future capital raises could introduce dilution risk for existing shareholders. The competitive landscape is also intensifying, with major players like Microsoft, Amazon, and CoreWeave rapidly scaling their GPU offerings. This could lead to pricing pressure and shorter hardware cycles, potentially eroding Nebius's margins if it fails to maintain its performance edge and cost efficiency.

Geopolitical uncertainties, including potential tariffs and export restrictions, pose a risk to Nebius's global operations and supply chains. While management believes its diversified footprint and strategic positioning can mitigate these impacts, the dynamic nature of global trade policies requires constant monitoring. Furthermore, the high valuation metrics, such as a P/S ratio of 67.58 (TTM), reflect significant growth expectations. Any slowdown in AI demand or execution missteps could lead to a re-evaluation of its stock price. The company also faces the challenge of high churn risk, particularly among smaller clients, and the ongoing need to attract and retain top AI talent in a fiercely competitive market.

Conclusion

Nebius Group N.V. stands as a compelling investment thesis, embodying the transformative power and immense potential of the AI infrastructure market. Its journey from a diversified technology conglomerate to a specialized, full-stack AI powerhouse, culminating in a landmark $17.4 billion partnership with Microsoft, firmly establishes its credibility and strategic importance in the global AI ecosystem. The company's core investment narrative is one of disciplined hypergrowth, driven by a technologically differentiated platform that offers superior efficiency and value in a capital-intensive sector.

The financial performance in H1 2025, marked by a 545% revenue surge and the core AI business achieving Adjusted EBITDA positive status ahead of schedule, validates its operational effectiveness. With ambitious guidance for year-end 2025 ARR of $900 million-$1.1 billion and midterm revenue targets in the mid-single-digit billions, Nebius is poised for sustained expansion. Its strategic capacity build-out, including securing over 1 gigawatt of power by 2026 and leveraging next-generation NVIDIA Blackwell GPUs, combined with a robust capital strategy that minimizes dilution through non-core asset monetization, positions it for long-term success. While risks such as high capital expenditure, execution challenges, and intense competition exist, Nebius's unique technological moats and strategic competitive positioning against both hyperscalers and neoclouds suggest it is well-equipped to capture a significant share of the burgeoning AI market. For investors seeking exposure to the foundational layers of the AI revolution, Nebius Group presents a high-growth opportunity with a clear path to becoming a dominant force.