Key Takeaways
- Applied Digital and Nebius are two companies operating in the rapidly growing artificial intelligence (AI) market.
- Applied Digital builds data center campuses for cloud, AI, and high-performance computing (HPC) companies, while Nebius provides cloud-based AI infrastructure services for a wide range of industries.
- Both stocks have more than tripled over the past 12 months, but Nebius is growing faster and trading at more attractive valuations.
- Applied Digital’s business is still evolving, with a recent pivot towards the cloud, AI, and HPC markets, while Nebius has secured big AI infrastructure contracts from tech giants like Microsoft and Meta Platforms.
Introduction to Applied Digital and Nebius
Applied Digital (NASDAQ: APLD) and Nebius (NASDAQ: NBIS) represent two distinct investment options in the rapidly growing artificial intelligence (AI) market. As stated in the article, "Applied Digital builds data center campuses for cloud, AI, and high-performance computing (HPC) companies. Nebius provides cloud-based AI infrastructure services for a wide range of industries." Both stocks have more than tripled over the past 12 months, but one of these companies is growing faster and trading at more attractive valuations. In this article, we will review their business models, growth rates, and valuations to determine if either of these hot AI plays is still worth buying.
Applied Digital’s Evolving Business
Applied Digital initially targeted Bitcoin miners and other blockchain companies, but it pivoted towards the cloud, AI, and HPC markets in 2022. As the article notes, "Applied Digital builds data centers, powers them up, and leases that space to companies that install their own servers. That core business model makes it more of a real estate company than a tech one." In 2023, Applied Digital launched a new subsidiary, Sai Computing, to provide its own cloud-based AI infrastructure services powered by Nvidia’s high-end GPUs. However, this business was unprofitable and competed against some of its own data center hosting clients, including Amazon and Microsoft. As a result, Applied Digital will spin off Sai’s cloud computing business and merge it with EKSO Bionics Holdings to create a new company called ChronoScale in the first half of this year.
Nebius’ Rebooted Business
Nebius was previously known as Yandex, which owned Russia’s leading search engine and a wide range of portals, mobile apps, and cloud-based services. However, due to sanctions against Russia, it was forced to suspend its shares in 2022, relocate its business to the Netherlands, spin off its Russian assets, and rebrand itself as Nebius. As the article states, "Nebius installs powerful AI servers in its own data centers and provides that computing power to companies that prefer not to install their own on-site servers." Nebius has already secured big AI infrastructure contracts from tech giants like Microsoft and Meta Platforms, and it expects its monthly revenue to reach $7 billion to $9 billion by the end of this year.
Growth Rates and Valuations
Both Applied Digital and Nebius have significant growth potential, but Nebius is growing faster and trading at more attractive valuations. As the article notes, "For 2026, analysts expect Nebius’ revenue to surge 521% to $3.45 billion. For 2027, they expect its revenue to soar another 125% to $7.8 billion." In contrast, Applied Digital’s revenue is expected to rise 38% to $297 million in fiscal 2026. With an enterprise value of $24 billion, Nebius seems reasonably valued at seven times this year’s sales, while Applied Digital appears expensive at 27 times this year’s sales.
Conclusion and Recommendation
Both Applied Digital and Nebius can continue to grow as the AI market expands. However, Nebius’s stronger growth rates, lower valuation, and clearer plans for the future make it a better buy than Applied Digital right now. As the article concludes, "Nebius’s stronger growth rates, lower valuation, and clearer plans for the future make it a better buy than Applied Digital right now. Applied Digital needs to carefully balance its spin-off of ChronoScale, the expansion of its Polaris 1 campus, and its rising costs to prove its business is sustainable." Therefore, investors looking to capitalize on the growing AI market may want to consider Nebius as a more attractive investment option.
https://www.nasdaq.com/articles/better-artificial-intelligence-stock-applied-digital-vs-nebius
