Goldman advised to buy shares of AI company Nebius Volozh and expects them to rise by 50%

Goldman Sachs advised investors to buy shares of Nebius, a company that rents cloud servers for AI work, it is headed by Arkady Volozh - a native of Kazakhstan and co-founder of Yandex. The investment bank analyst expects the market value of Nebius to increase by another more than 50% due to strengthening demand for generative AI. Nebius quotes have already added more than 80% since the beginning of the year, but Wall Street sees potential for further growth.

Goldman Sachs analyst Alex Duvallbegan coverage of Nebius Group shares immediately with a "buy" recommendation and a target price of $68 - 53% above the July 11 close. Duval noted that Nebius directly benefits from the growing interest in generative AI as more companies require its specialized GPU infrastructure. According to the analyst, Nebius' key advantages are its proprietary software, low costs and the ability to service large order volumes. Because of this, businesses and developers prefer to rent Nebius' AI capacity instead of buying expensive hardware.

Goldman Sachs believes that Nebius shares still look undervalued compared to its competitors. The analyst called the ratio of risk and potential profit of these securities favorable: for each conditional unit of possible loss there are up to four units of potential profit. Besides, they are traded with EV/Sales multiplier at the level of about three, while at the nearest competitor - CoreWeave - this indicator is approximately equal to five. 

According to Duval, Nebius' future growth drivers could be new rounds of investments, infrastructure expansion and entry into international markets. All these, he believes, could further increase the company's revenue and market valuation.

In trading on July 14, shares of Nebius soared by 16% to $51.4. That was their highest in two weeks. The company's market value is now up more than 80% since the beginning of the year. For comparison: the main U.S. stock index S&P 500 for the same period added about 6.5%.

Analyst DA Davidson raised his target on Nebius shares from $50 to $55 on June 16, reiterating a buy recommendation, reports Investing.com. The revision was due to a change in the market, with Metabuying nearly half of Nebius' competitor Scale AI for $14.3 billion and turning its founder Alexander Wang over to it. According to analyst DA Davidson, this weakens competition: Scale AI is now effectively leaving the open market, and other companies like Nebius will be able to take the vacated share.

According to data from MarketWatch, all five analysts who have issued ratings on Nebius' stock advise investors to buy it (four rated Buy and one rated Overweight). Wall Street's consensus target price of $66.8 implies a potential upside of 50% to the company's market value.

Nebius is actively growing in the artificial intelligence space. In the most recent quarter, the company's revenue increased by an impressive 385% year-over-year to $55.3 million. The company is also among Nvidia's key partners, getting access to its latest AI chips before anyone else and making it available to its customers, notes Benzinga.

In addition, Nebius focused on growing its core AI infrastructure business, losing control of Toloka, a service that deals with marking up data for AI to improve its quality and accuracy. This came as part of a deal to attract a strategic investment from Bezos Expeditions, the fund of Amazon founder Jeff Bezos. It led a $72 million funding round. The amount Bezos' fund invested was not disclosed, only that Nebius retained a "significant majority economic stake" as a result, but lost voting control. The Bezos fund's investment amount was not disclosed;

This will allow all resources to be directed to where margins and growth are higher, Benzinga explains. And Bezos' investment adds weight to the company in the eyes of investors and partners, helping it attract new customers and capital, according to the publication;

This article was AI-translated and verified by a human editor