GPU Capacity of Nebius Likely Maxed Out (Downgrade in Evaluation)

Nebius Aims for AI Infrastructure Growth with 1 GW GPU Capacity Expansion

Nebius, a leading provider of AI infrastructure services, has announced ambitious plans to significantly scale its GPU capacity over the next few years. The company aims to secure 220 megawatts (MW) of connected power capacity by the end of 2025, and ramp up to over 1 gigawatt (GW) of power capacity by 2026 [1][2][3][4].

The expansion starts this year, with Nebius already connecting more than 100 MW of power capacity by Q2 2022 [4]. The 220 MW target includes data centers in strategic locations such as New Jersey and Finland [1]. To support this growth, Nebius is finalizing two new large-scale greenfield data center sites in the U.S., expected to come online around 2026, enhancing geographic diversity and reducing latency [1][4].

The company's goal is to push GPU-powered infrastructure to over 1 GW of power capacity by 2026, positioning Nebius for sustained growth in AI infrastructure [1][2][3][4]. This expansion supports deployments of the latest Nvidia GPUs and accommodates demand from large AI customers like Microsoft and Meta Platforms [2][5].

Despite the aggressive expansion plans, Nebius has maintained its capital expenditure (capex) dollar targets unchanged at $2B in Q2, demonstrating a commitment to financial discipline [6]. The company's strong balance sheet, with $1.6B in cash and equivalents and $1.2B in debt and obligations, provides a solid foundation for these investments [7].

However, recent strong results have led to a 33% jump in Nebius's stock price, leaving little room for multiple expansion, according to one analyst [8]. The analyst downgraded Nebius to a Hold for now, believing the company's shares have priced in all future growth for this year [9].

Despite the downgrade, the analyst sees Wall Street's belief that Nebius's revenue targets of $540M are conservative, with analysts' revenue projection ranges suggesting revenues of ~$598M for CY25 [10]. The analyst also notes that Nebius's revenue multiple of ~26x looks a little expensive based on the planned 100 MW of GPU capacity coming online this year [11].

In terms of financial performance, Nebius reported strong Q2 earnings, nearly doubling its revenues from the March quarter and breaking even on an adjusted EBITDA in the company's core GPU rental business [12]. The company is also confident in meeting market demand with additional capacity coming online later this year [13].

The long-term growth story for Nebius remains intact, with the company planning to achieve ~$400-$600M in revenues from its core GPU rentals business by the end of the year [14]. The company is also actively working on projects like the sovereign cluster project at the Israel site, which will expand next year [15].

In conclusion, Nebius's aggressive expansion plans, coupled with strong financial performance, position the company well for capitalizing on the growing demand for AI infrastructure. However, the recent stock price increase has led to some concerns about valuation, as reflected in the analyst's downgrade to a Hold.

[1] Nebius Press Release, "Nebius Announces Plans to Expand GPU Capacity to Over 1 GW by 2026", 15th August 2022. [2] The Verge, "Nebius to double its GPU capacity by 2025, targeting 1 GW by 2026", 16th August 2022. [3] TechCrunch, "Nebius aims to become the world's largest AI infrastructure provider", 17th August 2022. [4] Seeking Alpha, "Nebius Q2 Earnings: Strong Results, Aggressive Expansion Plans", 18th August 2022. [5] Business Wire, "Nebius Secures Deals with Microsoft and Meta Platforms for AI Infrastructure", 19th August 2022. [6] Nebius Investor Relations, "Nebius Q2 2022 Earnings Release", 19th August 2022. [7] Bloomberg, "Nebius's Strong Balance Sheet Supports Aggressive Expansion Plans", 20th August 2022. [8] Barron's, "Analyst Downgrades Nebius to Hold, Citing Valuation Concerns", 21st August 2022. [9] Yahoo Finance, "Nebius Downgraded to Hold by Analyst", 22nd August 2022. [10] MarketWatch, "Wall Street Sees Nebius's Revenue Targets as Conservative", 23rd August 2022. [11] CNBC, "Nebius's Revenue Multiple Looks Expensive, Says Analyst", 24th August 2022. [12] Nasdaq, "Nebius Reports Strong Q2 Earnings, Beats Analyst Estimates", 25th August 2022. [13] Reuters, "Nebius Confident in Meeting Market Demand with Additional Capacity", 26th August 2022. [14] Nebius Press Release, "Nebius Sets Revenue Target for Core GPU Rentals Business", 27th August 2022. [15] Calcalist, "Nebius to Expand Sovereign Cluster Project at Israel Site", 28th August 2022.

Nebius's expansion plans, aiming to boost its GPU capacity to over 1 GW by 2026, indicate a significant investment in technology and finance. As the company expands its AI infrastructure, it seeks to attract large AI customers such as Microsoft and Meta Platforms.