Last year, shares of a small artificial intelligence (AI) stock called SoundHound AI witnessed an unprecedented rise. While SoundHound AI’s voice recognition technology is an exciting pocket of the AI realm, the main contributor to the company’s outsized price movement was linked to a strategic investment by Nvidia.
Like financial institutions, companies are required to report their ownership positions in other businesses through a 13F filing. According to Nvidia’s most recent 13F, the company exited its position in SoundHound AI and took a stake in a data center stock called Nebius Group (NASDAQ: NBIS).
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If you’re unfamiliar with Nebius, don’t worry. The company is flying under the radar for a reason — but that may not last too much longer.
I’ll explore how Nebius is playing a critical role in the AI revolution and assess why the company’s valuation appears reasonable right now.
How did Nebius and Nvidia link up?
Nebius was once owned by a Russian internet conglomerate called Yandex. However, following Russia’s invasion of Ukraine, the U.S. and European Union (E.U.) placed sanctions on Russia, which resulted in some intriguing business decisions.
As it pertains to Yandex, the company spun off non-Russian subsidiaries — Nebius being one of them. Following this transaction, Nebius listed on the Nasdaq Composite as its own independent, publicly traded company.
Shortly after debuting on the Nasdaq, Nebius conducted an equity financing round in which it raised $700 million. This is the round Nvidia participated in; hence the company’s stake in Nebius became public news, required to be reported in a 13F.
Image source: Getty Images.
How is Nebius working with Nvidia?
Back in September, Nebius announced that it is investing $1 billion for an AI infrastructure across Finland and France. As part of the rollout, Nebius will be constructing data centers equipped with clusters of Nvidia’s Hopper and Blackwell graphics processing units (GPU).
On top of that, the company is also expanding its influence in the U.S. as it’s launching a new data center in Kansas City, which will feature more Blackwell GPUs.
Given the company is beginning to make a splash here in the U.S. and its close ties to Nvidia, I wouldn’t be surprised to see Nebius become more integrated with other ongoing AI infrastructure projects — namely from hyperscalers such as Microsoft, Amazon, and Alphabet.
Analyzing Nebius’ valuation
According to the company’s press release for fourth-quarter earnings, annual recurring revenue (ARR) is expected to reach at least $220 million by the end of the first quarter (March) “based on contracts already in place.” Furthermore, Nebius CEO Arkady Volozh told investors that the company’s December ARR goal of $750 million to $1 billion is “well within reach” — crediting the Blackwell rollout and expanding customer base as the main catalysts.
Here is where things get a little interesting. In a recent article, my fellow Fool.com contributor Bram Berkowitz thoughtfully pointed out that Nebius could be seen as a competitor to CoreWeave. While CoreWeave is still private, the company is rumored to be going public at $35 billion valuation — potentially this year. Assuming reports that CoreWeave’s 2024 revenue of $2 billion are accurate, that would imply a price-to-sales (P/S) multiple of 17.5.
If I apply that same ratio to Nebius, that could suggest a valuation between $13.1 billion and $17.5 billion for the company — depending on where it lands on the ARR guidance. Considering the company currently boasts a market capitalization of $10.9 billion, I think it’s reasonable to say that Nebius stock has some attractive upside.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nebius Group, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.