THE MIDDLEMAN STRATEGY

(NBIS), (NFLX)

Let me tell you about the most fascinating conversation I had last week. An old friend Dave – now a CTO at a Fortune 500 company – called me up asking about AI infrastructure investments for his company’s portfolio. 

During our chat, he mentioned they’re having trouble sourcing GPU capacity for their own AI initiatives. 

“John,” he says, “we’re trying to build AI capabilities and we can’t get the computing power we need anywhere. It’s like trying to find a decent parking spot at Costco on a Saturday afternoon.” Dave’s got three kids under 10, so he knows a thing or two about impossible missions.

That conversation got me thinking about supply and demand dynamics in the AI space, and specifically about Nebius Group (NBIS) – this Dutch AI infrastructure company that might just be sitting on the financial equivalent of beachfront property in Malibu.

Here’s the setup: While everyone’s arguing about whether artificial intelligence will steal their jobs or make them rich, Nebius is quietly positioning itself as the landlord collecting rent from both sides. 

They provide the massive computing infrastructure that powers everything from ChatGPT to autonomous vehicles. Think of them as the electric utility company during the Industrial Revolution – not the flashiest play, but absolutely essential.

The numbers are genuinely staggering. 

Nebius just reported Q1 revenue of $55.3 million, representing 385% year-over-year growth. Their Annual Recurring Revenue hit $249 million, up 684% from last year. 

To put that in perspective, most blue-chip companies would sacrifice their quarterly dividends for growth rates like that.

But here’s where it gets complicated, and why I’m not backing up the truck just yet.

This company burns cash like a 1970s Cadillac burns gasoline. They torched through $1 billion in a single quarter, dropping their cash position from $2.45 billion to $1.45 billion. 

Their operating loss expanded to $129.5 million compared to $82.9 million last year. Every single cost category exploded higher – product development, sales, administration, depreciation. 

It’s growth, but it’s expensive growth.

Now, before you start thinking this sounds like every dot-com disaster story you’ve heard, consider the fundamental difference: the AI revolution is actually happening. 

Your smartphone recognizes your voice, Netflix (NFLX) knows what you want to watch before you do, and those customer service chatbots are getting unnervingly good at their jobs. 

All of that requires enormous computing power, and that’s exactly what Nebius provides.

The company has expanded from one facility in Finland to five locations across Europe, the United States, and the Middle East, with aggressive plans for more. They’re essentially building the digital highways that AI companies need to operate. 

The question isn’t whether demand exists – it clearly does. The question is whether Nebius can scale fast enough without running out of money.

Smart money recently validated that thesis. 

In June, Nebius raised another $1 billion through convertible notes – half due in 2029 at 2% interest, half in 2031 at 3%. That’s not desperate financing; that’s strategic capital raised while the market still believes in their story.

The upcoming catalyst sits right around the corner. Nebius reports Q2 earnings on July 28, with analysts expecting revenue of $92.8 million. 

If they hit that number, it represents 68% sequential growth, which would reinforce the hypergrowth narrative. 

Miss it, and this volatile stock could provide some spectacular entertainment for day traders.

Here’s my assessment: Nebius represents a pure play on AI infrastructure demand, which I believe is real and sustainable. 

The company has established itself as a legitimate player in a market that’s essentially unlimited. Their target of reaching $1 billion in ARR isn’t fantasy – it’s based on actual customer pipelines and expansion plans.

However, this remains a high-risk, high-reward situation that requires strong conviction and stronger risk tolerance. 

The stock trades at roughly 40 times forward sales, which is expensive even by growth stock standards. Traditional valuation metrics don’t apply here because you’re essentially betting on whether the AI boom continues and whether Nebius can capture enough market share to justify these prices.

For conservative investors seeking steady income or predictable earnings, this isn’t your play. 

But for those with risk capital who believe AI infrastructure represents the next great investment theme, Nebius offers compelling exposure without betting on any single AI application.

My take? This one’s worth watching closely, potentially worth buying selectively, but definitely not worth betting the farm on. 

Besides, sometimes the best opportunities come with the biggest question marks attached.