Nebius Group's Valuation After Microsoft Deal: Is it Overvalued or Undervalued?

Nebius Group's share price surged after a deal with Microsoft to supply AI infrastructure and GPU capacity. The stock's rise leaves investors wondering if there's still value left on the table or if the market has already priced in future upside. The company's narrative fair value is $153, and the last close was $127.98, indicating market optimism. However, intense competition and regulations could dampen momentum and challenge growth and profitability forecasts.

Nebius Group's share price has surged significantly following a substantial deal with Microsoft to supply AI infrastructure and GPU capacity. The stock has climbed over 350% year-to-date, reaching near all-time highs. This rapid ascent has left investors questioning whether there is still value left on the table or if the market has already priced in future upside.

The deal, signed in September, is a 5-year contract worth $17.4 billion, with an option to expand to $19.4 billion. This agreement gives Microsoft access to Nebius's high-performance cloud and over 100,000 Nvidia GPUs, underscoring the surging demand for AI data centers. The contract has been a significant catalyst for Nebius's stock price, leading to a one-day 44% stock jump Nebius Group’s Meteoric Rise: $17B Microsoft AI Deal Propels Stock to New Highs – What’s Behind the Hype?^[1].

In response to the Microsoft deal, Nebius announced a $3 billion expansion plan to scale its AI cloud capacity. This includes $2 billion in convertible notes and $1 billion in new equity, aiming to grow its capacity from 190 MW to 1 GW by 2026 . The company expects to generate ~$1 billion in annual recurring revenue by 2026 and turn EBITDA-positive that year .

Analysts are largely bullish on Nebius, with a consensus rating of "Buy" and recent upgrades from firms like BWS Financial and Goldman Sachs. However, some analysts caution that Nebius will burn cash to scale and likely issue more debt/equity, which could dilute shareholders .

The company's background and market positioning are notable. Nebius Group, based in the Netherlands, emerged from the 2022 breakup of Russian internet giant Yandex. It has built a "neo-cloud" platform optimized for AI, offering not just raw GPU power but a full stack of managed services tailored for AI developers. This end-to-end approach differentiates Nebius from rivals that provide only basic cloud instances .

Market reactions to Nebius's rapid ascent have been mixed. While some analysts are impressed by the company's execution in a nascent industry, others remind investors of the execution risks. Building AI supercomputers is a complex and costly endeavor, and any hiccup in delivering capacity or if the Microsoft project falters could impact growth projections .

Nebius's narrative fair value is $153, while the last close was $127.98, indicating market optimism. However, intense competition and regulations could dampen momentum and challenge growth and profitability forecasts. Despite these challenges, Nebius remains a focal point for tech investors and AI industry watchers, often cited as a standout in 2025's AI stock frenzy .