Nebius stock outlook as Nvidia predicts robust AI growth

Nebius stock jumped by over 6% in the extended hours as technology companies reacted to the strong Nvidia earnings, which painted a rosy color on the booming AI industry. It rose to $215 after ending the day at $213. Still, the company faces significant competition challenges as more companies move into the industry.

Nvidia expects the AI growth to continue

Nebius Group, a company that counts Nvidia as a big investor, rose after the latter delivered a stronger-than-expected earnings report. In a statement, Nvidia said that its revenue jumped to $96 billion last quarter, higher than the expected $92 billion.

Most importantly, the company guided to its FY’28 revenue growth being higher than expected. Its guidance is that its revenue will grow by 70%, much higher than the 40% analysts were expecting. The real figure will be much higher than that because the company assumed no China sales.

Nebius Group will benefit from the ongoing AI boom because it is one of the biggest infrastructure providers in the industry. It counts top companies like Meta Platforms and Nvidia as clients.

Its most recent results showed that revenue went parabolic, a situation that will accelerate in the foreseeable future. Its revenue jumped to $582 million in the second quarter, a 454% annual increase. For the first six months of the year, revenue was up by 529% to $981 million.

In its statement, the company said that demand for its computing power was so high that it could sell out its 2027 capacity today. This bodes well for its growth trajectory, which analysts expect will continue in the foreseeable future.

Indeed, analysts predict that its annual revenue will climb 532% this year to $3.35 billion. They also expect it to grow by over 250% next year to $11 billion. If this growth continues, it means that the company will hit the $50 billion mark in the coming years. 

Costs, cash burn, and competition

Still, the company’s revenue growth has not boosted the stock performance. That’s because its business is facing substantial challenges, including the rising costs, with Nvidia planning to increase prices by as much as 15% in January. Other products like servers and memory are getting expensive by the day.

This surge will lead to more cash burn. In its last quarter, the company spent $5.7 billion in capex. As a result, there is a risk that it will dilute its shareholders further. It sold 12.7 million shares, generating $2.8 billion in cash. It has 12.3 million more shares available in the current ATM program. 

Competition is also rising in the industry. On Wednesday, Anthropic reached a $45 billion deal with Nscale, a top Nebius competitor. Rum Holdings, formerly known as Rumble, has also entered the industry. This is on top of other top companies like Meta Platforms, RIOT Platforms, and MARA Holdings.

These concerns explains why the company has a high short interest of over 21%, with Michael Burry being one of the top short sellers.

Nebius Group stock technical analysis

NBIS stock chart | Source: TradingView

The daily chart shows that the NBIS stock has pulled back, erasing the gains it made after the last financial results. It has dropped from a high of $276 to the current $213. By doing this, the stock has filled the fair-value gap it formed after its earnings report. 

The two lines of the MACD indicator have formed a bearish crossover pattern. On the positive side, it formed an abandoned baby candlestick pattern on August 24. Now, after the strong Nvidia earnings, there is a likelihood that it will retest the resistance at $250 and then resume the downward trend.