Nebius Group N.V. NBIS shares have lost 24.2% over the past three months, underscoring broader and company-specific challenges.  

The broader market volatility over the past month has been due to the tariff and trade tensions between the United States and other countries, especially China. Though President Trump’s announcement of a 90-day pause on reciprocal tariffs and hinting at a possible de-escalation with China cheered investors, the volatility is far from over. 

Apart from that, company-specific factors have also been weighing on the stock’s performance. Operating losses, divestment of Yandex, and pricing pressure from bigger players have kept investors cautious. Based in Amsterdam, Nebius is positioning itself as a specialized AI infrastructure company.

Price Performance

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The stock has also underperformed the Zacks Computer & Technology sector and the Zacks Internet Software Services industry’s decline of 12.9% and 3.7%, respectively. The company has underperformed its peers like CoreWeave CRWV and some major players in the AI infrastructure market, including Microsoft MSFT and Amazon AMZN. CoreWeave has gained 5.1% while Microsoft and Amazon shares have declined 6% and 20.3%, respectively, in the same time frame. 

NBIS stock is trading 53% below its 52-week high and closed last trading session at $24.11. This puts the stock in highly distressed territory and raises questions about its future trajectory. Let’s discuss whether this dip signals caution or opportunity for investors.

Plenty of Challenges Remain for Nebius

Growth prospects are muted in the near term for NBIS, given a challenging global macroeconomic environment. Increasing lead times as customers become more selective are expected to weigh on the top-line expansion. NBIS is investing significantly in expanding capacity, which is expected to keep margins under pressure, at least in the near term.

Nebius is a relatively new entrant in the AI cloud infrastructure space which boasts behemoths like Amazon, Microsoft and Alphabet. Amazon Web Services and Microsoft’s Azure cloud platform together dominates more than half of the cloud infrastructure services market. Microsoft already has a global-scale AI cloud, whereas NBIS is still expanding its infrastructure. Additionally, Microsoft’s exclusive partnership with OpenAI gives Azure cloud the priority to access, leading AI models like GPT-4 Turbo and DALL·E. The intense pricing pressure from these players can weigh on NBIS’ profitability. 

Nebius’ net loss widened to $136.6 million in its fourth-quarter 2024 results, from a loss of $88.3 million in the year-ago quarter. Investors have remained cautious about the company's early stage of development and its limited experience operating on a standalone basis. 

Since Nebius Group’s business heavily relies on the AI infrastructure services and solutions market, it faces distinct challenges unique to this segment. One major headwind is the extended lead time for customer deals, as organizations require prolonged proof-of-concept testing and complex contract negotiation processes before making any commitment.

Stretched deal cycles create uncertainty in revenue flow and make it difficult for NBIS to swiftly onboard new clients to replace completed engagements. As a result, this delay can contribute to customer churn, impacting overall business stability.

Estimate Revision and Bearish Technical Indicators for NBIS

Analysts have significantly revised their earnings estimates downward for NBIS’ bottom line. 

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The stock is also trading below the 50-day and 100-day moving averages, implying that analysts retain a bearish sentiment for the stock.

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NBIS' Valuation

In terms of Price/Book, NBIS shares are trading at 1.74X, lower than the Internet Software Services industry’s ratio of 3.65, but it could mean more risk than opportunity.

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Conclusion: Sell NBIS stock for Now

Nebius, which resumed trading publicly on Nasdaq on Oct. 21, 2024, faces formidable competition in the AI infrastructure space. To stand out, it must lean into its European focus, cost-effectiveness, and technical depth while aggressively building customer trust and partner ecosystem.

NBIS carries a Zacks Rank #4 (Sell), which implies investors should stay away from this stock. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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