Nebius Group N.V. (NBIS) now faces a very different valuation after its post-earnings rally. The artificial intelligence (AI) cloud company headquartered in the Netherlands reported $582.3 million in Q2 revenue, up 454% year-over-year. GAAP loss per share in Q2 was $0.68. This strong performance triggered a massive post-earnings rally, with Nebius stock surging 34% on August 12.
On the back of this rally, I believe Nebius Group is now overvalued, with a lot to prove over the next few years. However, I am maintaining a neutral stance on the stock as I believe Nebius has a long runway for growth.
Q2 Earnings Strengthen the AI Bull Case
Although I am neutral on Nebius due to valuation concerns, I believe the Q2 earnings print strengthened the AI bull case for a few reasons. Beyond the strong headline numbers, Nebius reported several improvements across its business operations in Q2. Annual recurring revenue reached $3 billion in Q2, almost 6x growth compared to the corresponding quarter the previous year.
In a notable turnaround in its cash flow profile, Nebius reported adjusted EBITDA of $236 million for Q2, compared to an adjusted EBITDA loss of $21 million in Q2 2025. Adjusted EBITDA margin was 41%, up 900 basis points compared to Q1. Strong adjusted EBITDA margin growth suggests that Nebius is well-positioned to turn profitable as it scales. This differentiates the company from some of its peers that have found it difficult to generate positive adjusted EBITDA.
Also, the Q2 report highlights several important client wins, with four such contracts exceeding $1 billion in deal value. Interestingly, these high-value deals have a payback period of under two years. Therefore, Nebius will not be forced to keep its capital tied to these deals for an extensive period of time.
The clearest sign that Nebius is benefiting from AI demand is that Nebius is now negotiating short-duration contracts at $40 million to $50 million per MW. This marks contract pricing growth of over 15% compared to its Blackwell pricing. Customers therefore seem comfortable with paying materially higher prices for high-performance graphics processing unit (GPU) capacity.
Nebius Is Diversifying into New End Markets
Despite my neutral stance on Nebius, I am impressed by the company’s revenue diversification efforts. A couple of years ago, Nebius emerged as a developer of high-performance GPU clusters with a primary focus on hyperscalers. Today, the business is evolving. Nebius ended Q2 with a total contracted backlog of around $40 billion. A closer look at some of the deal wins in Q2 suggests Nebius is now expanding its end-user base.
For instance, the company secured $1 billion+ deals from Cohere (an enterprise AI model company), Reflection (an open foundation model developer), and also a large-scale quantitative trading firm. This ongoing diversification helps Nebius in a few ways. First, the company’s funding capacity gets a boost from this strategy. Nebius expects $9 billion+ in customer prepayments in 2026, which should go a long way in covering capex requirements.
Second, diversification will help Nebius expand into different types of companies operating in different end markets, potentially reducing the cyclicality of revenue. Third, securing durable, sustainable demand across a few end markets should help Nebius enjoy premium valuation multiples in the long run.
Substantial Capex Calls for Caution
One of the main reasons behind my neutral stance on Nebius is its substantial capital expenditures. For 2026, the company now expects capex of $20 billion to $25 billion. In contrast, full-year revenue is expected to be around $3 billion to $3.4 billion. Nebius expects customer prepayments of around $9 billion this year. These prepayments will cover only 36% to 45% of its planned capex for 2026.
The remaining $11 billion to $16 billion in capex for 2026 will have to come from operating cash flows, cash on hand, and a combination of debt and equity issuance. The company had $8 billion in cash and equivalents as of Q2. Q2 operating cash flow was $2.3 billion. Theoretically, Nebius should be able to cover its 2026 capex if it utilizes its cash balance in full and also its operating cash flows, but this is neither sustainable nor likely.
As Nebius scales and secures new contracts, I believe the company will be forced to tap into capital markets, potentially diluting the ownership of existing shareholders. Even in Q2, the company issued 12.7 million shares at a weighted average sale price of $224, raising approximately $2.8 billion.
Commenting on this, CFO Dado Alonso said: “In Q2, we also tapped our at-the-market equity program. We issued 12.7 million Class A shares at a weighted average price of $224 per share, generating gross proceeds of approximately $2.8 billion. As of June 30, 12.3 million shares remain available under the program.”
Nebius’ Valuation Implies Years of Flawless Execution
Nebius is delivering exceptional operational momentum, making it unrealistic to expect cheap valuation metrics. That said, investing at an elevated valuation level will expose investors to a major downside risk given that Nebius seems valued to perfection.
Based on the low end of the revenue guidance of $3 billion for 2026, Nebius is valued at a forward EV/Sales multiple of around 21x. The sector median EV/Sales multiple is 3.74x. Nebius is most certainly not being valued on its current revenue base. The market is effectively valuing it as a potential multi-gigawatt AI-compute platform.
This valuation hinges on Nebius executing all of its operational priorities on time, perfectly. This exposes investors to a massive execution risk and the potential impact of unforeseen industry-level challenges.
For Nebius’ valuation to make sense, several assumptions are needed. These assumptions include the company converting its roughly $40 billion in backlog into revenue beyond 2027, building massive GPU capacity without delays, and financing its growth without diluting existing owners. At an EV/Sales multiple of around 21x, I believe investors are asking too much from Nebius.
Is Nebius a Buy, According to Wall Street Analysts?
Based on the ratings of 11 Wall Street analysts, the average Nebius price target is $260.20, which implies upside of 2% from the current market price.
Takeaway
I believe Nebius enjoys a long runway to grow. The company is moving in the right direction. It is expanding into new end markets, using customer prepayments to cover some of its capex requirements, and focusing on high-value, short-duration contracts. All that said, investors should not jump to an investment conclusion without assessing its valuation today.
Nebius looks expensively valued. Its valuation assumes flawless execution spanning a few years. Given the low margin of error implied by its valuation, I am neutral on Nebius today.