Nebius and the AI Bubble: Lessons from the Dotcom Era

The AI infrastructure sector is experiencing a valuation frenzy reminiscent of the dotcom bubble, with Nebius Group at the center of the storm. The company’s 625% year-over-year revenue surge in Q2 2025 and a $900M–$1.1B annualized revenue run rate (ARR) guidance have fueled optimism, but its 40.81 P/S ratio—far above the sector median of 2.90—raises red flags about sustainability [2]. This valuation mirrors the speculative exuberance of 1999–2000, when 56 tech companies had P/S ratios above 25, driven by hype rather than profitability [1]. Yet, unlike the dotcom era, Nebius operates in a market with tangible AI-driven monetization, such as Alphabet’s Gemini tools serving billions of users [2].

The parallels are striking but nuanced. During the dotcom crash, companies collapsed because they lacked viable business models or revenue streams [5]. Nebius, by contrast, is investing heavily in infrastructure, with a 22% R&D-to-revenue allocation in 2024 and a $2B capex plan to scale global data centers [3]. However, its $91.5M net loss in Q2 2025—largely from capital expenditures—exposes liquidity risks [2]. If AI demand slows or ARR targets miss, a re-rating could follow, echoing the 78% NASDAQ plunge post-2000 [1].

Governance reforms, including the appointment of independent directors like Esther Dyson and Kira Radinsky, suggest Nebius is learning from past bubbles [3]. These changes aim to balance executive ambition with oversight, a critical safeguard against the governance failures that accelerated the dotcom collapse [5]. Yet, regulatory risks persist. The EU AI Act could delay deployments, while U.S.-China trade tensions and energy price volatility threaten margins [1].

Sustainability, however, offers a buffer. Nebius’s 2024 Sustainability Report highlights 20% lower total cost of ownership (TCO) through energy-efficient data centers and 94% low-carbon electricity usage [3]. Its Mäntsälä facility in Finland, with a power usage effectiveness (PUE) of 1.1, even recycles heat to meet 65% of local heating needs [6]. These initiatives align with emerging regulatory frameworks and differentiate Nebius in a market increasingly prioritizing ESG metrics.

The key question remains: Is Nebius’s valuation justified by its long-term potential or inflated by short-term hype? While modern tech giants like Microsoft and Alphabet have demonstrated profitability, Nebius’s path to breakeven on an adjusted EBITDA basis by year-end 2025 is ambitious [3]. Its 133.9% annual revenue growth target to reach $3.2B by 2028 is optimistic, especially given the sector’s history of overvaluation.

Investors should monitor three metrics: power capacity utilization, customer acquisition costs, and EBITDA margins [1]. A slowdown in any of these could trigger a correction. Yet, Nebius’s focus on AI infrastructure—a market projected to grow to $5.2T by 2030—provides a compelling long-term narrative [4].

In conclusion, Nebius embodies the duality of the current AI boom: a blend of innovation and risk. While its governance and sustainability efforts mitigate some concerns, the parallels to the dotcom era caution against complacency. For investors, the lesson is clear: high valuations require equally high execution.

Source:
[1] Performance after Peak Valuation Navigating the Tech ... [https://www.wisdomtree.com/investments/blog/2023/07/28/performance-after-peak-valuation-navigating-the-tech-sectors-high-multiples]
[2] Nebius Q2 Earnings: Growth Rates Matter—Does the AI Infrastructure Giant Justify Its Stretched Valuation? [https://www.ainvest.com/news/nebius-q2-earnings-growth-rates-matter-ai-infrastructure-giant-justify-stretched-valuation-2508]
[3] Nebius Group 2024 Sustainability Report highlights importance of sustainability to long-term value creation in AI infrastructure [https://group.nebius.com/newsroom/nebius-group-2024-sustainability-report-highlights-importance-of-sustainability-to-long-term-value-creation-in-ai-infrastructure]
[4] The AI Bubble and Its Implications for Tech Market Stability [https://www.ainvest.com/news/ai-bubble-implications-tech-market-stability-2508]