A Unique Opportunity: Investing in Nebius Amidst AI Stock Sell-off

Recently, there has been a wave of selling in AI stocks, especially after unexpected news from China that has left many investors rattled.

For the past week, the spotlight in the financial sector shifted away from Nvidia for a moment, largely due to discussions surrounding a Chinese AI startup named DeepSeek. DeepSeek has developed a competing large language model similar to OpenAI's ChatGPT. However, what sets this model apart is its use of older Nvidia processors, which raises concerns about the relevance of Nvidia's latest technologies. The realization that a capable AI can be created with legacy hardware has sent shockwaves through Wall Street, casting doubt on the demand for Nvidia's advanced graphics processing units.

This narrative has shaken the confidence of many AI enthusiasts, who have been consistently bullish on AI stocks over the last couple of years. However, this broad sell-off may also present a unique buying opportunity for investors willing to look beyond the surface. One lesser-known data center stock to consider is Nebius Group (NBIS), which could be particularly appealing right now.

Insights from Major Tech Earnings

The recent panic in the tech market is largely tied to concerns that spending on Nvidia's GPUs might decrease. While there is validity to the thought that technology companies will adjust their capital expenditures (capex), insights from major tech companies can help alleviate these worries.

Companies often referred to as the "Magnificent Seven" have recently released earnings reports. In these calls, management dropped hints about their respective AI strategies, which can be quite telling. Let's see what some top Nvidia clients, like Microsoft, Tesla, and Meta Platforms, had to say.

• Microsoft: Given its tight partnership with OpenAI and the integration of ChatGPT across Microsoft services, many analysts pay close attention to its Azure cloud platform. Recently, Microsoft’s Azure has shown some slowing growth, which led the company to indicate that this year’s capex spending will not see the same growth as in prior years.
• Tesla: Often viewed purely as an automobile manufacturer, Tesla plays a significant role in the AI sector. The company is focused on initiatives like building a fleet of autonomous vehicles (robotaxis) and humanoid robots named Optimus. For these projects, Tesla has invested heavily in AI infrastructure, reporting an AI-related capex of around $5 billion so far, with flat expectations for 2025.
• Meta Platforms: Meta recently announced plans to allocate up to $65 billion for capex in 2025, marking more than a 60% increase from 2024. While this announcement came before the DeepSeek news, Meta still reaffirmed its commitment to significant investments in AI, including infrastructure like data centers and servers.

The key takeaway from the remarks made by big tech leaders is that while the pace of spending growth might slow, the absolute amount of investment in infrastructure is not expected to drop significantly. This could appear discouraging for Nvidia at first glance. However, in the long run, it makes sense, as the enormous financial commitments made by these tech giants should start to yield results. A continuous linear growth in capex could actually indicate instability.

Nebius and Nvidia's Connection

Interestingly, Nvidia is an investor in Nebius, which creates a synergistic relationship between the two companies. Nebius is preparing to establish a GPU cluster in Kansas City, MO, primarily using Nvidia’s Hopper GPUs in the initial phase, with plans to incorporate the latest Blackwell architecture later this year.

Furthermore, Nebius is expanding data centers in Finland and Paris that will utilize various Nvidia processor types, including H100, H200, and Blackwell GPUs.

Should You Buy Nebius Stock?

The performance charts of Nvidia and Nebius in early 2025 reveal a clear trend: both stocks experienced declines simultaneously when DeepSeek came into the limelight.

The insights from the tech sectors hint that while the growth in capex might slow down, companies will continue to invest substantially in their infrastructures. Data centers like Nebius are poised to benefit, as they rely on Nvidia’s technology. Despite the current fluctuations in spending by major players, the ongoing relevance of Nvidia’s chipsets assures Nebius a steady demand.

Following Nvidia's steep decline, notable technology analyst Dan Ives stated that this could be an ideal moment to "buy the dip." I resonate with this sentiment and believe that investors should consider exploring related opportunities, particularly in sectors like data centers. With significant prospects in place, Nebius appears well-positioned for future growth, and its shares are increasingly appealing amidst market fluctuations.

stocks, AI, investment