Nebius Group: Market Overreaction or Real AI Disruption?

Key Points

• Following DeepSeek's release, shares of Nebius plummeted almost 40% on Monday.
• Despite market fears, Nebius continues to show strong growth, with Q3 2024 revenue surging 200% QoQ.
• The company is expanding its AI infrastructure, strengthening partnerships, and advancing in autonomous delivery.

Shares of Nebius Group NASDAQ: NBIS took a nosedive on Monday, plummeting nearly 40% following the release of DeepSeek’s latest AI model. The shockwave of this announcement caused fear-driven sell-offs across AI and semiconductor stocks, with NBIS being one of the most brutal hits. 

Although the stock has since recovered nearly 50% of Monday’s losses, it remains down almost 18% on the week coming into Friday. The key question now is whether DeepSeek’s emergence is a serious threat to NBIS or if this sell-off presents a compelling buying opportunity. Just days before the DeepSeek release, NBIS was trading at all-time highs. So, is it now a bargain, or does the AI disruption from China shift the long-term outlook?

What Is Nebius, and Where Is the Value?

Nebius Group N.V. is a Netherlands-based AI technology company that offers a diverse portfolio of AI-driven services. Its primary businesses include Nebius AI, a cloud platform specializing in AI deployment and machine learning solutions. Toloka AI focuses on generative AI, particularly model training and data generation. Another company branch, Avride, provides autonomous vehicle solutions for logistics and ride-hailing. Lastly, TripleTen is an EdTech platform that equips learners with STEM and tech-focused skills.

Since its market debut, Nebius has raised $700 million through private placements, attracting investments from NVIDIA and Accel Ventures. The company has positioned itself as a strong AI infrastructure player, making its sharp decline particularly noteworthy.

The Impact of DeepSeek’s Release on NBIS

DeepSeek’s low-cost AI innovation has caused investors to worry about the traditional AI infrastructure business model, which NBIS relies on for revenue. Although NBIS has integrated DeepSeek’s models into its AI studio, fears persist that cost-effective AI alternatives will reduce demand for high-end AI services, impacting NBIS’s pricing power and profitability. While some might see this as an opportunity for NBIS to leverage DeepSeek’s technology, the dominant market sentiment based on the price action this week has been that it represents a competitive threat rather than an asset.

Does DeepSeek Fundamentally Change the Company's Prospects?

Despite investor panic, DeepSeek’s launch does not appear to alter NBIS’s long-term trajectory for the time being. Several key factors suggest that the market reaction may be exaggerated.

In Q3 2024, Nebius posted an impressive revenue surge to $43.3 million, marking a 200% quarter-over-quarter increase. The AI infrastructure segment alone grew 300% QoQ and 650% YoY, showcasing strong service demand. At its current pace, Nebius is on track to achieve an annualized revenue run rate of $120 million, with projections indicating $750 million to $1 billion in revenue by 2025.

On January 22, 2025, Nebius expanded its generative AI capabilities by launching open-source text-to-image AI models through its Nebius AI Studio. This move strengthens its AI service offerings, positioning the company as a potential leader in next-gen AI solutions.

Nebius has been rapidly expanding its AI infrastructure. It recently opened a GPU-equipped data center in Kansas City and plans to open another U.S. cluster in 2025. The company’s strategic initiatives include partnerships with Uber Technologies for autonomous vehicle projects, reinforcing its ability to leverage AI across multiple industries.

With $2.3 billion in cash reserves and strong revenue growth, Nebius is well-capitalized to navigate AI market disruptions. This financial foundation cushions against competitive pressures and allows the company to invest in R&D, partnerships, and infrastructure expansion. Nebius’s existing partnership with NVIDIA creates the potential for additional collaborations with other key players by leveraging its NVDA partnership.

Avride’s Autonomous Delivery Expansion

Avride, a key subsidiary of Nebius, is making rapid advancements in autonomous delivery. On Thursday, It announced a partnership with Grubhub to deploy robotic food delivery services on college campuses across the U.S. The initial fleet of 100 robots is already active at Ohio State University, and next-generation models are planned for rollout. 

Market Overreaction?

While DeepSeek’s emergence as a cost-efficient AI provider has caused widespread panic, NBIS appears fundamentally strong. The company continues to expand its AI services, enhance its infrastructure, and grow through strategic partnerships. With a strong financial position, increasing revenues, and a solid foothold in AI infrastructure, Nebius appears well-positioned to weather AI industry shifts and capitalize on future growth. The current sell-off may present a compelling entry point for investors willing to bet on the long-term strength of AI infrastructure companies like Nebius.