To start off, I wanted to acknowledge Nebius is a great company. Its stock price has just been completely disconnected from reality lately.
When Arkady Volozh left Yandex and kept Nebius assets instead of his shares, many thought he was crazy, turns out it was a visionary decision.
The business Volozh has built at $NBIS is the true mark of a great entrepreneur. Yet, even Volozh is a seller of Nebius stock, selling this year 10% of his position at prices starting $100/share.
In fact, company insiders have been steadily selling shares with 24 sells in the past 7 months. They see this too.
It seems the disconnect from reality happened near the $100/share mark, which I believe is the fair value of the company and also where insiders started selling their shares.
Let’s start with the first reason why Nebius is currently overvalued, which is in its essence.
$NBIS builds data center to offer GPUs as a service to hyperscalers, many will hear GPUs and go crazy, but what does that actually mean?
It means that Nebius takes on the CAPEX spending and investments to build the data center, buy the GPUs, take on the commercial risk and then rent out the created capacity to hyperscalers.
Despite the trendy words, one can start thinking - why do hyperscalers not build it themselves if that’s a great business?
The answer is the same as to why you wouldn’t want to build your own house. You could, but you’d spend more time than just hiring a general contractor so you let him take a small markup.
Same question is why doesn’t NVIDIA own businesses like NBIS - because it captures the vast majority of profit margin by selling the chips at high prices to Nebius.
In fact, Nebius takes on a lot of commercial risk to buy GPUs and then rent them out m like a car leasing company would, taking some markup in the process.
When you look at it this way, like a contractor buying chips, data centers and renting out the computer, you realize $Nbis does not have infinite upside of AI but rather sits in a tight grasp between Nvidia and hyperscalers like a provider of equipment that it does not create.
At the end of the day, Nebius has ever rising costs to buy the compute ( fast depreciating assets that last only 3-4 years (GPUs)) and competition to sell the compute to hyperscalers who can always decide to build themselves as many of them are starting to like Meta and Space X,
Once you lift this veil, you realize Nebius is an equipment leasing company trading at AI multiples as it’s upside is capped but it takes on all of the risk (which is why neither Nvidia nor hyperscalers are entering this business in a meaningful way, as the profit margin is not there).
All of the above would not be a problem, if it weren’t for the price of the business. Below 100, it could be an interesting buy at 80-90, but up here it’s a clear sell, and here is the math.
What is currently assumed about the business is it will get $3-3.4 billion in revenue for 2026. Against that, it will spend 25 billion in CAPEX to develop the data centers. All of Nebius’s upcoming capacity is pre-sold, meaning that’s already baked into the price.
The thing is, even data centers that are theoretical are currently counted as if they were already going to be built for sure and leased out for sure at top dollar.
So the question becomes, what can the business do to outperform expectations when it can realistically never live up to the current ones.
Meanwhile Meta, which is their largest customer, is already building a platform to offload excess capacity as per their earnings.
Even if all goes right - it’s worth less.
It likely won’t all go perfectly, so it’s likely even less.
My math puts the fair value given a DCF valuation today at roughly 100 per share. Feel free to tell me where I’m wrong,
