Shares of Nebius Group N.V., traded on NASDAQ under the ticker NBIS, have been on the rise this Thursday, drawing investor attention following Morgan Stanley's initiation of research coverage on the firm. The investment bank assigned an equal-weight rating and set a price estimate reflecting potential notable appreciation, highlighting several strategic elements that may propel the company forward.
Morgan Stanley analyst Josh Baer brought attention to Nebius's aggressive scaling ambitions coupled with its positioning in the growing artificial intelligence infrastructure market. According to Baer's assessment, Nebius aims to dramatically expand its operational footprint, targeting a connection of approximately 700 megawatts of power capacity by the year 2026. This expansion is foundational to the firm's goal of achieving annual recurring revenue (ARR) in the range of $7 billion to $9 billion by the fourth quarter of that same year.
Presently, Nebius reports an ARR near $600 million, highlighting the magnitude of the intended growth. Baer observed that if Nebius succeeds in deploying its capacity and capitalizing on the substantial market opportunity, margins and free cash flow could experience significant improvement in the long run. Nonetheless, he also cautioned about the inherent risks that this ambitious scaling plan entails.
The strategic roadmap of Nebius centers on its cloud infrastructure tailored for AI applications, aiming to establish its presence as a major provider within the sector. The firm's financial strength is underpinned by a variety of factors, including its diversified customer base and ongoing investments in associated business lines that fall outside its core consolidated operations. These elements may offer additional, diversified revenue streams, complementing the primary AI compute services.
Maintaining a robust balance sheet alongside efficient capital access is an essential aspect of Nebius's financial policy, as it supports the capital-intensive growth initiatives. However, the company's expansion plan is not without considerable challenges. The substantial increase in capacity will require significant capital expenditure, which may suppress earnings before interest and taxes (EBIT) margins in the near term due to rising depreciation and ongoing investment costs.
At the time of reporting, Nebius Group shares demonstrated an appreciation of approximately 2.07%, trading at around $104.10. Such price movement reflects investor responsiveness to the positive analyst feedback and the company's promising growth prospects despite associated execution risks.
As investors evaluate Nebius Group, the balance between the company's ambitious scaling efforts and the financial and operational risks they present will remain a critical area to monitor. The coming years will be instrumental in determining whether Nebius can translate its infrastructure commitments and revenue targets into sustained financial performance.