Microsoft Just Lit a Fuse Under Nebius (NBIS). Buy Now Before It Takes Off

Microsoft (NASDAQ:MSFT) unveiled yesterday what it describes as “the next chapter” in its evolving partnership with OpenAI, reaffirming the AI pioneer as its key frontier model collaborator. The announcement revealed Microsoft’s acquisition of approximately 27% of OpenAI’s for-profit OpenAI Group PBC business, valued at around $135 billion, while ushering in a new phase of artificial intelligence (AI) innovation.

A standout element of this expanded pact is OpenAI’s commitment to procure $250 billion in Azure cloud services, alongside newfound flexibility to partner with third parties. However, a key condition mandates that any API-based products — essentially interfaces enabling different software applications to exchange data and services –must run exclusively on Azure, while non-API offerings can leverage any cloud platform.

This structure bolsters Microsoft’s dominance, granting it intellectual property rights to OpenAI’s breakthroughs until Artificial General Intelligence (AGI) is realized, effectively securing a near-term monopoly over the commercial AI layer.

Yet, a less conspicuous winner will also emerge from this deal, poised to reap significant rewards: Nebius Group (NASDAQ:NBIS), an up-and-coming AI infrastructure provider. By supplying critical GPU resources for Azure, including from its new data center in New Jersey, Nebius is well-positioned to capitalize on the rising tide of OpenAI-driven workloads, boosting its compute utilization.

Supported by its recent five-year, $17.4 billion agreement with Microsoft to deliver AI infrastructure from its New Jersey data center — —potentially expanding to $19.4 billion if demand increases — Nebius is carving out a vital role in the industry. The market has yet to fully recognize the powerful multiplier effect this could have on NBIS stock, presenting investors with a timely opportunity to buy in now before it takes off.

The setup enhances Nebius’ revenue stream, particularly as OpenAI’s tools like ChatGPT and GitHub Copilot scale globally. With Microsoft investing heavily in AI supercomputing, Nebius benefits from the increased utilization of its GPU infrastructure.

The company’s recent financials reflect this potential, with doubled revenues and positive EBITDA in its core AI business, signaling strong operational momentum. This partnership positions Nebius to capitalize on the projected 45% CAGR growth in the neocloud market through 2030, making it a critical player in supporting the AI ecosystem.

Rather than developing AI models, Nebius focuses on supplying the “GPU fuel” essential for AI innovation. Its full-stack AI infrastructure, including large-scale GPU clusters and the Aether platform, meets the rising demand for cloud-based AI services.

The company’s global data center expansion, spanning Europe, the Middle East, and the UK, enhances its scalability and ability to serve diverse markets. This strategic role as an enabler, rather than a competitor to model developers, sets Nebius apart as a mid-cap leader. Its recent deal with Microsoft to provide data center capacity further strengthens its position, offering a pipeline for long-term growth as AI workloads intensify.

Despite the upside, Nebius faces hurdles. Azure’s GPU supply chain is highly competitive, with players like Dell (NYSE:DELL), Hewlett Packard Enterprise (NYSE:HPE), and Lenovo vying for contracts. Microsoft’s practice of hedging suppliers could cap Nebius’s share, while the stock’s recent pullback after a rally suggests short-term volatility.

The company’s ambitious data center expansion also poses execution risks, as maintaining margins amid competition and scaling operations will be challenging. Analyst fair value estimates for NBIS range widely from $125 to $206 per share, reflecting broad uncertainty about whether it can stick the landing. Investors must consider these factors, especially with the stock’s performance under scrutiny ahead of a critical third-quarter earnings release on Nov. 11.

Analysts view the Microsoft deal as a potential catalyst to elevate Nebius’ market standing, supported by a “Strong Buy” consensus and updated annual recurring revenue guidance of $900 million to $1.1 billion. However, some note the stock’s recent dip, indicating volatility. The timing, just before earnings, adds urgency for investors eyeing a position.

With Microsoft’s own strong earnings growth and Nebius’ strategic role, the investment case is robust for those betting on AI infrastructure, though careful timing is key.

The Microsoft-OpenAI partnership will light a fire for significant growth potential under Nebius, which can leverage its role as a GPU supplier for Azure and its strategic Microsoft deal. This positions NBIS as a compelling investment in the expanding AI infrastructure sector.

However, investors should be mindful of the competitive pressures, execution risks, and volatility NBIS faces. The wide range of analyst price targets underscores the variability at play, but as the market begins to recognize Nebius’ pivotal role in the AI ecosystem, now may be the single-best strategic moment to invest.