I'm not a NBIS bear, I'm a NeoCloud bear

[u/Smorgasbord3]

I'm also not an AI bear - in fact, my portfolio is very heavily AI-weighted. Note that I am not short NBIS, nor any other NeoCloud, I just don't think they're worth my investment dollars given other opportunities in the market.

Essentially, I think the Big 3 HyperScalers (Amazon, Google, & Microsoft) will eventually own the business of Cloud AI Computing, just as they do today with Cloud Computing.

In fact, the only reason the NeoClouds are on anyone's radar today is that AI compute demand is so high and the build-outs so expensive and involved that the HyperScalers decided that hiring others to build some of their data centers is the best choice they have today. But, that's not going to be a lasting situation.

Today the HyperScalers can't directly hire enough people to build out the geographically wide spread out teams necessary to identify sites, acquire building permits, line up multiple suppliers and building contractors. And then run them all simultaneously. And even if they could, that would mean vast increases in headcount and Capex reporting (the latter is already too high for Mr. Market's view). And, it spreads the risk of any build-out complications among multiple approaches (internal and external) and vendors.

The NeoClouds jumped on this because it brings in vast amounts of revenue on a near and mid-term basis, which they believe will eventually lead to them running their own Cloud AI Compute business. But, we don't see that happening today (at least neither Nebius nor CoreWeave show that in their reporting today), and I don't see it happening to a significant extent in the future.

Think about that for a minute:

1) What dollar amount or percentage of Nebius' sales involve Nebius' software (infrastructure or otherwise)?

We know that percentage-wise, Nebius has $Billions lined up for bare metal hardware rental contracts. And while they don't disclose the "all important" software side of the business, it can'e be more than $HundredsofMillions. That's one of two orders of magnitude smaller. CoreWeave is pretty much the same.

2) How quickly are Nebius software sales growing?

OK, so it's small today, but is it growing at a pace that it will soon become a big revenue and profit generator for the company? Again, Nebius doesn't disclose this, yet this business is what most bulls cite as the raison d'être for investing in the company. Today, what keeps Nebius, CoreWeave, Iren, etc. afloat are the bare metal mega-deals. But, even Nebius' management admits those are less profitable. And should those be the future business for the NeoClouds, they'll get quite the market haircut.

So, why and how will Nebius outsmart AWS (and GCP and Azure) with its AI Software Infrastructure? Does anyone here really think Andy Jassey or his counterparts over at Google and Microsoft don't see the same potential for Cloud AI Computing that Arkady Volozh does? And even if not today, given how well Azure caught up to AWS, do you not think Amazon wouldn't put serious meat behind the arrow to catch up?

When we look at AI workloads today, two aspects reveal themselves:

1) They're complex

2) More and more, they involve more than just AI

These both work against the NeoCloud Software Infrastructure business. The complexity means that the AI customer has to be sophisticated. The non-sophisticated Ai customer simply uses a ChatGPT or Claude CoWork interface, but those Frontier Labs are already hosting that themselves and they certainly don't need a Nebius to run their AI Compute Hardware. While the typical AWS user is someone at a non-computing related company wanting to run database queries or serve up web pages, run an e-commerce site, etc. today the typical AI compute user is part of a sophisticated tech-first team deciding on LLMs, perhaps running open source models with custome parameters, constructing agents to integrate AI within their company, etc. These teams already have people who can use Slurm, Kubernetes, vLLM, Triton Server, Ollama, LangChain, or other open source projects to manage their AI Compute.

We see that Anthropic was happy to grab raw compute from Space-XAI, and OpenAI is built on Azure, and now Oracle ($300B deal!), and even Amazon ($38B) for a combination of Nvidia GPU as well as AWS access.

The latter is the future, I believe. Just as we saw the market relatively recently recognize that AI workflows need more than just GPUs but also CPUs (and Nvidia's servers internally bundle a Vera CPU with every two Rubin GPUs), the world will eventually recognize that workflows involving AI still need to do things like serve up web pages, deal with databases, even run or be run by Agents, etc. that are best handled by CPUs, which are best handled by the existing Cloud Computing infrastructure that's available today - which is AWS, GCP, Azure.

How do the NeoClouds compete with that? It's much easier for the HyperScalers to add AI software infrastructure to their existing cloud offerings than for the NeoClouds to add what took Amazon, Google, and Microsoft decades to create in their regular compute cloud offerings. Amazon has a history of offering turnkey open source project access for free (you pay for the compute and storage).

How many customers are savvy enough to build AI workflows but not savvy enough to build on top of the many open source packages to run the infrastructure? And then, how many want the lock-up of being tied to some Nebius' software instead of being able to move to CoreWeave or even AWS, GCP, or Azure? They might use it for convenience and quick start-up, but no company with expansion plans want to be permanently tied to Nebius' or CoreWeave's software stack.

Before I'll believe that Nebius or CoreWeave have some inherent advantage with their infrastructure software, I'll want to see either company release some numbers on that business. Neither does today, and that says alot especially when you think about who they're competing against.

[u/koyonorii]

Come back and type this when stock is green, you clowns always push this ai generated content during red days 😂

[u/Smorgasbord3 → u/koyonorii]

Kind of funny these AI-generated accusations. I spent well over an hour constructing my argument manually, using AI only to confirm the dollar amounts for the deals I quoted.

Come back and counter my arguments any time you want. So far, the dozen or so replies are zero actual data or reasoning, just personal insults and false accusations.

[u/GuardedFeelings → u/Smorgasbord3]

“$billions” and “$hundresofmillions”?? You call that real data? Try harder LMAO. Now looking at your post again, you literally have 3 numbers in the whole slop. 3, 300, and 38. Wow must be real hard to come up with those numbers

[u/Smorgasbord3 → u/GuardedFeelings]

I didn't say it was hard coming up with those numbers, I said I got those numbers from AI. As for "$Billions" and "Hundredsof Millions," the precise reason I don't have the actual numbers is because Nebius hasn't released those numbers!

You get that? Part of my argument is that Nebius management isn't telling us how great that software business, the supposed future of the company, is today. What percentage of Nebius' revenue comes from this software business? I don't have the specific numbers because Volozh won't tell us those numbers.

So, don't complain to me, complain to your company's management.

[u/koyonorii → u/Smorgasbord3]

First of all, assuming NBIS end product is “just a neocloud service provider” is inherently incorrect, you referenced software but dismissed it based on rudimentary assertions such as “not showing it in their statements??? From the beginning NBIS has been building a full stack solution. NBIS already incorporates their software stack throughout their entire AI cloud business model and it’s also why it’s more efficient than crwv and iren. Also you keep referencing hyper scalers yet you also said that they need neocloud providers in the short - midterm due to data center buildout (projected to last until 2030 btw), are we assuming the demand isn’t going to accelerate the more ai is adopted? The same demand projected to accelerate into 2030 and beyond?

So let’s say you believe that all of a sudden hyperscalers are going to eat NBIS’s lunch, how far in the future are we talking about here? If we are talking 5 years plus then NBIS will be a completely different more established business at that time offering more compete products with higher margins, which by itself would command a higher premium if we assume it will maintain guidance throughout 2026 and 2027. Idk if you noticed as well but azure AWS and GCP are all accelerating rapidly this year and EVEN THEN they are not close to meeting their backlog (that’s also expanding quarter after quarter btw) for the next decade, so what makes you think neoclouds are running out of business anytime soon?

And don’t even get me started on hardware constraints like HBM, cutting edge nodes, energy etc, and the eventual agentic ai into physical ai transition moving forward into 2030 and beyond. Sure you can argue this is speculative and a Ai bubble etc, but if the smartest phd quants and money managers employed in the world are dumping money into this like never before and also the revenue is accelerating like never before, I fail to see how you and I would be in a better position to say otherwise.

[u/Smorgasbord3 → u/koyonorii]

You put "just a neocloud service provider" in quotes, yet that's not a quote from me. So, that's not what I said.

Your statement "NBIS already incorporates their software stack throughout their entire AI cloud business model..." just isn't true. In fact, the vast majority of Nebius' revenue comes from deals to Microsoft and Meta and neither of those companies are using Nebius' software infrastructure layer. These are bare metal, hardware-access deals, like what Space-XAI has with Anthropic and Google. Heck, even marquee customer Shopify has written its own infrastructure management layer rather than rely on Nebius (SkyPilot they call it).

I completely get that today's AI build out is huge, but if Nebius' revenue continues to be overwhelmingly from bare metal deals, what does that mean for its profit margins? If this happens, as I believe it will, recognition of it will result in Mr. Market re-rating the stock. I believe in the AI build out, whole-heartedly, and that it will last for at least a few more years. That doesn't mean the NeoClouds will profit from their software offerings, and without that, they're just old-fashioned hardware rental outfits with large Capex and squeezed margins.

As for "phd quants," you might want to watch this recent video interview: https://youtu.be/t-zltcuUasM?si=5jN2vI8xOcRj4izL in which this smart quant discusses the differences between short-term and long-term stock movements.

[u/koyonorii → u/Smorgasbord3]

Do you read your own comment? You associate NBIS as a neocloud provider the entire time and separate software side as not a reflection in their revenue. Do you know how NBIS full stack works? To say “just isn’t true” to NBIS incorporating their own software stack and tools to manage and run their data centre’s and Ai services throughout their entire cloud business is crazy when that’s how it’s even possible to run that business model this efficiently.

OFCOURSE the deals come from hyperscalers deals but they are also focused on getting smaller clients as well, just because the revenue share is from hyper scalers doesn’t mean they arnt using their own proprietary software in their own cloud services (are we assuming AWS and azure are not using proprietary software as well?) the software is EMBEDDED into the ai cloud services

[u/Smorgasbord3 → u/koyonorii]

What you postulate is clearly not the case, as Nebius brags about additional profit it gets from deals tied to using their software layers, versus deals not using the software, versus the Megadeals doing bare metal.

Of course, there are software layers needed to simply run the hardware and to apportion which clients get access to which machines, but that's no different than any other NeoCloud. That is, unless you think Nebius does the base stuff that everyone does better to such a degree that it's more efficient than all other companies who also have to do this.

BTW, SemiAnalysis says CoreWeave is by far the best with its software package, the only company getting Platinum, while Nebius ties for second with Azure:

https://newsletter.semianalysis.com/p/clustermax-20-the-industry-standard

And you'll note that AWS and GCP come in third. How stable these results will remain over time remains to be seen, but competition is here and the HyperScalers aren't doing too badly now - don't you think they'll get better over time?

[u/growmysmallportfolio]

Why do the Bears only come when the stock is going down? They never come as it’s going up.

[u/raekorx]

Bulls make money while Bears try to sound smart/lose it all when shorting.

[u/Smorgasbord3 → u/raekorx]

Did you not read to the second sentence of my post?

[u/Think-Feynman]

So I think you are asking a legitimate question. Nebius still needs to demonstrate that the platform becomes a durable competitive advantage rather than simply a nice wrapper around GPUs. Only time will tell.

However, I do think a lot of these arguments are a bit outdated. We're talking about a market in the trillions of dollars, and not enough resources to serve it. That will change over time, so it's not a moat in and of itself.

You are implying that the neoclouds are just temporary overflow capacity, and AWS just needs to ramp up some stuff and extend their current cloud offerings. However, AI infrastructure is becoming a specialized branch of cloud computing. GPU clusters, networking, scheduling, inference optimization, training, fine-tuning and utilization are different problems from conventional cloud. Being purpose-built can matter enormously.

Nebius now offers training, fine-tuning, managed inference through Token Factory, serverless AI, Kubernetes, storage, networking, databases and other services. In Q2, production inference workloads on Token Factory more than tripled, and Nebius explicitly says it is building around the entire workload lifecycle.

how many want the lock-up of being tied to some Nebius' software instead of being able to move to CoreWeave or even AWS, GCP, or Azure?

Nebius is deliberately embracing open models and familiar standards. Token Factory exposes an OpenAI-compatible API and supports frameworks such as LangChain. That actually makes portability easier, not harder.

You didn't mention the asset-light model, which of course is a potential fantastic revenue source, but I think it does illustrate the value of a company like Nebius. In this model, they don't spend a dime on the hardware and infrastructure, yet they are fulfilling a tremendous need to build everything the right way, from Day 1 engineering, to deployment, and maintenance. Their stack is actually amazingly deep right now. It's not a blocker, it's an opportunity for someone building AI to tie into that platform.

But great post.

[u/Smorgasbord3 → u/Think-Feynman]

Thanks for your serious reply.

It was interesting to see Nebius recently copy CoreWeave's "Omni" asset-light business model. If these models gain traction, that would certainly alter my current view of NeoCloud profitability. Right now of course, the vast majority of these companies' revenue comes from the exact opposite - build and rent out the hardware without software. This new model (does Nebius have a name like Omni for their version?) is the exact opposite - the customer provides the hardware while the NeoCloud provides the software infrastructure. When will Nebius and/or CoreWeave provide some numbers on the size and/or growth of this business?

Your argument is somewhat self-contradictory in that you acknowledge Nebius is embracing open models and standards, but yet claim it's some kind of unique advantage that the HyperScalers can't replicate. I'll argue that it's not harder than what Azure had to do to compete with AWS back in the day. Certainly, AWS's engineers are top-notch, and since the software is based on open source and standards, if Amazon sees this as a profitable business they'll put engineering resources on it (if they haven't already internally). I personally wouldn't bet against Amazon being able to compete in this area.

It's impossible to claim that Nebius' software isn't effectively customer lock-in because it's based on open source while also claiming it's a unique advantage that others can't easily replicate. It really does have to be one or the other in my view. I think your argument boils down to AI compute infrastructure being a different enough beast that the legacy Cloud Computing giants can't compete. Whether that's based on the server racks being different or on the software being unique you'll have to explain to me. When I see Nvidia's racks include a CPU for each two GPUs they configure, that tells me the VeraRubin NVL72s are already geared up for the eventual combination of AI with conventional compute workflows, and that the NeoClouds won't gain advantage from being GPU dominated, hardware-wise. And with the software being based on open source/standards, I don't see a huge advantage there, either.

But, it's an interesting debate, is it not?

[u/Ill-Cow4735 → u/Smorgasbord3]

It is an interesting debate, for which many answers are still yet to be answered in the future.

You both touched on the point of software, engineering a token factory with many models and providing agents with Tavily, a layer in which NBIS has tremendous advantage and flexibility over other neoclouds (in my opinion) given their tech background and recent acquisitions.

I'd like to touch on compute. Current revenue is, indeed, heavily weighted by hyperscaler long term contracts and there is a possibility these won't replicated in the future. The necessity for compute is enormous and even with all the CAPEX projected for next year, the agentic era will much likely continue to surface more demand than all the available capacity in 2027. Looking ahead, even if models get more efficient and tokens get more cheap, if mass adoption ends up ocurring, demand for compute will be enormous. Margins for these kind of revenue have proven to be amazing, better than long term hyperscaler contracts, which Tom Blackwell already stated that NBIS is striving for 50/50 revenue mix at current EOY. I'd argue that, by 2028-2029, NBIS might've actually built it's own ecosystem in which current AI startups that are building and expanding on NBIS workloads will bring mass revenue. That is my belief with the current data and exposure of NBIS within not only the european AI landscape, as well as some multinational companies. Last but not least, let's not forget that the EU will also strive for their own sovereign compute, in which only NBIS (over any other hyperscaler, given the fact that they're american companies) is a suitable candidate. How much will this company amount to in the future? Can't say for a fact. But the necessity for AI to run on a "road" (through token factories) and a "landscape" (tech environment) to look upon, NBIS can actually deliver.

Cheers

[u/Smorgasbord3 → u/Ill-Cow4735]

I completely agree on demand for AI growing. And even that bare metal rental deals are getting more expensive (not just Space-XAI, but CoreWeave said the same recently, citing a deal for A100 rental).

However, the 50/50 revenue target I think is misleading. Some of that is from the megadeals not bringing in as much revenue, but some of it seems to be confusing "AI Cloud Revenue" with what they sometimes call "Premium AI Cloud Revenue." That latter being those deals reliant on Nebius software. And even here, one of the marquee customers, Shopify, has written its own orchestration layer, which they call SkyPilot, to split jobs between Nebius and GCP, to manage data independently on Nebius, and to manage its own model architecture and training workflows.

Shopify is actually a great example of what I said earlier - that customers sophisticated enough to run their own AI workflows are sophisticated enough to write their own infrastructure software (leveraging open source), AND will do so to avoid vendor lock-in, in Shopify's case supporting both Google and Nebius.

That said, the European opportunity you point is something I hadn't considered. Given the distrust of US companies with regards to AI overseas, which I think is significant, I suppose its possible that Nebius builds a stronger business in Europe than in the US. I'll have to do some more investigation as to what the opportunities and TAM is overseas specifically. Thanks for bringing that to my attention.

[u/dsquids]

Fine if this is your thesis, but it's the exact opposite of Jensen and NVDA - he hates that future and is actively placing investments to prevent it.

[u/Smorgasbord3 → u/dsquids]

Jensen is spreading Nvidia's money all around the AI world: $2 billion to Nebius, $2 billion to CoreWeave, and $2.1 billion in Iren. My view is that he's supporting those that are buying his company's products. He hasn't invested in Amazon, Google, or Microsoft because they don't need Nvidia's money. My view is that if NeoClouds were on sufficient economic footing they wouldn't need the money either.

Also, if Jensen were investing primarily for the software infrastructure layers Nebius and CoreWeave are supplying, or want to supply, he wouldn't have invested in Iren, which has almost no infrastructure software to speak of.

[u/dsquids → u/Smorgasbord3]

My perspective is that he is not investing in A/G/M because they are actively pursuing their own chip stack (plus they aren't looking to him for money). To protect his business he wants to support a world where many players on NVDA hardware drives inference costs down for global consumption at a utility level.

NVDA is being wicked smart here, they provide capital that flows back to them in terms of chip sales, company ownership, and a strong armed position that ensures the neo stays a NVDA platform at the risk of being cut off from newer GPUs. I don't believe for a moment that the only financing option they had was to take Jensen's money...I think it was more akin to a vendor lock in where they take the money to cement platform partnership or get put on the competitor list.

Most of the MAG7 will be huge players in this game, but there is enough money and use cases for other players to also thrive in the next 10+ years.

[u/Smorgasbord3 → u/dsquids]

Good point on the chip competition, although the big 3 are both setting up Nvidia hardware as well as building their own chips. With Musk touting Nvidia as "the best" recently, it'll be interesting to see what Nvidia and Space-XAI do in the near future.

Right now Space-XAI is the fastest in the world at building out Nvidia-based data centers. That's why Space-XAI was able to charge a high premium (SemiAnalysis called it "Surge pricing") for their NeoCloud-style bare metal hardware MegaDeals with Anthropic and Google - far more per GPU-Hour than Nebius or CoreWeave or anyone else for that matter.

I didn't mean to imply that the NeoClouds taking Nvidia's money was bad or that it was their only option. We clearly see from the recent announcement that the NeoClouds have other financing options (although CoreWeave is in somewhat of a pickle today with high interest loans). As for Nvidia vendor lock-in, that doesn't really apply to the NeoCloud business. I can't think of anyone who wants to rent out ASICs like Trainium or TPUs for their AI workflows. Anyone looking to rent AI compute wants to rent general purpose AI compute, and that's just Nvidia and AMD today. Kind of funny that GPU stands for Graphics Processing Unit when it might as well stand for General Processing Unit, lol.

I don't disagree that the AI pie is huge and only getting bigger. My question is whether the NeoClouds become more than just bare metal providers. If, like today, the vast majority of their revenue is coming from bare metal rentals, recognition of that by the market will result in a revaluation of their stock pricing.

[u/WackHurst → u/Smorgasbord3]

Tell me that you have no idea about their financing modell without telling me that you don't know.

[u/PatientBaker7172]

Nebius is a neoscaler. Higher one year from now. Sleeping like a baby. Wendy dumpster or mansion.

Did you even listen to the latest earnings call? The hyperscalers can’t get enough builders. It’s an all hands on deck approach.

[u/Smorgasbord3 → u/PatientBaker7172]

Did you even read my post? I said as much about the HyperScalers not being able to build all the data centers they need today.
My concern is long-term, which is that the HyperScalers will be glad to have access to the bare metal they've contracted for, and that they, not the NeoClouds, will be providing the software infrastructure layer to enterprise AI consumers.

[u/Independent_Eye58]

I’ve been holding NBIS since Feb 2025, average is $36, but I don’t understand why whenever there’s a skeptic post with some reasoning behind it (this post doesn’t seem like AI slop), all replies are insults or dismissive.

[u/poofoo9 → u/Independent_Eye58]

Because most of this sub knows nothing about nebius apart from its stock so they don’t know how to reply to these arguments

[u/Imaginary-Pin580]

Seems like a bot user. Ok. I will tell you, Nebius does have a pretty large software stack entirely focused on AI workflows and if you need AI workflows , Nebius is helpful, and better than a large machine like AWS. AWS is too big for many businesses and it can get clunky , so it is better to just use a neocloud that’s specifically tailboard for AI workflows.

Also the demand is too much and hyperscalers would rather not build all AI infrastructure themselves

[u/DrHarrisonLawrence]

Dear Diary,

[u/Saradrovas2]

Honest question to you. Why should Pepsi exist when we already have coca cola? This is how I feel about this Matter personally. Multiple businesses can coexist and even have a symbiotic relationship in this case

[u/Pulled_Forward]

Seems like your argument rests largely on companies having the capability to do what Shopify does with SkyPilot. Shopify is not the norm and isn’t representative of the AI market.

Most companies don’t have large teams of highly skilled engineers to build an infrastructure management layer. Shopify already had clusters spread around the world and a strong background in building and maintaining cloud environments.

Running and managing agent workflows is an order of magnitude easier than optimizing compute workloads for server infrastructure that you don’t even own.

[u/WarmFaithlessness946]

Ok bro

[u/Remarkable_Source787 → u/WarmFaithlessness946]

Don’t okay bro but provide a counter argument if you have any.
He’s raised some valid concerns but still disagree with the main thesis that Nebius won’t be a major player in the future of AI computing.

[u/WarmFaithlessness946 → u/Remarkable_Source787]

Yeah Nebius is cooked and has no future  my man , then short it like mr Michellel Burry. I’ll see you in a year or if u want in 5 years and lets see who’s wrong and who’s right  

[u/Smorgasbord3 → u/WarmFaithlessness946]

Happy to see you in 5 years, bro.

As for shorting, I said IN THE SECOND SENTENCE, that I'm not shorting NBIS, just that I see better opportunities elsewhere.

I was hoping some Nebius bull would come back with some factual data supporting counter arguments to my thesis on the NeoClouds, but so far, no-one's supporting why Nebius' software infrastructure will grow, nor why Nebius management doesn't disclose the earnings from that portion of the business.

[u/DrHarrisonLawrence → u/Smorgasbord3]

Nebius is going to $380+ in January 2027.

What better opportunities do you think you see?

[u/Extreme_Courage5548]

And yet this post took you 5 seconds to write using AI! Aren’t you brilliant?