CoreWeave (CRWV +1.57%) and Nebius Group (NBIS +4.53%) are two companies that have been growing at an incredible pace owing to their business model. These companies are in the business of building data centers capable of running artificial intelligence (AI) workloads and renting them out to hyperscalers, AI companies, or anyone looking to buy dedicated AI data center capacity.
Formally known as neocloud companies, both CoreWeave and Nebius have seen incredible jumps in their stock prices this year. While CoreWeave is up 84% since its initial public offering (IPO) in late March this year, Nebius stock has shot up a stunning 231% this year. But if you had to choose from one of these two neocloud stocks for your portfolio right now, which one should it be?
Let's find out.
Image source: Getty Images.
The case for CoreWeave
CoreWeave went public toward the end of March, and it was the biggest tech IPO in the U.S. since 2021. Shares of the company rose impressively over the next few months and hit a high on June 20. However, it has been all downhill for CoreWeave since then, with the stock losing over 60% of its value.
CoreWeave investors got another shock recently after the company released its third-quarter results. Though it reported massive year-over-year growth of 134% in its revenue to $1.36 billion, CoreWeave had to slightly reduce its full-year guidance. It now expects full-year revenue to land at $5.1 billion at the midpoint of its guidance range, down from the earlier estimate of $5.25 billion.
The company had to trim its guidance because of a delay in the delivery of data center capacity by a third-party developer. CoreWeave said that this delay is temporary, and the impacted customer has agreed to maintain the total contract value and has adjusted the delivery schedule. So, this is a short-term impact that CoreWeave should be able to overcome.
NASDAQ: CRWV
Key Data Points
Importantly, CoreWeave's long-term growth story remains intact. That's evident from the company's massive revenue backlog of just under $56 billion at the end of the previous quarter. CoreWeave was sitting on a backlog of $15 billion a year ago, so this metric almost quadrupled. The massive leap in CoreWeave's backlog can be attributed to the ever-growing demand for AI compute capacity.
The company has received massive contracts from Meta Platforms, OpenAI, and other hyperscalers who are looking to purchase AI compute capacity. As a result, CoreWeave is bringing new capacity online at an aggressive pace. It increased its contracted data center power capacity by 600 megawatts (MW) to 2.9 gigawatts in Q3.
Additionally, it brought online 120 MW of new capacity in Q3. CoreWeave had a total active data center capacity of 590 MW at the end of the previous quarter. The contracted capacity makes it clear that CoreWeave is on track to bring online more capacity, and that should allow it to convert its sizable backlog into revenue.
Another thing worth noting here is that CoreWeave has built a diversified customer base. It now has 10 large customers, thereby reducing its reliance on one or two names, and almost all of them have signed multiple contracts with CoreWeave. So, this AI stock seems primed to regain its mojo, and the huge demand for AI computing power should ensure that it keeps growing at a terrific pace in the long run.
The case for Nebius
Just like CoreWeave, even Nebius is getting massive contracts from customers such as Microsoft and Meta. Though Nebius is a relatively small company when compared to CoreWeave, it can scale up quickly thanks to its recent deals.
NASDAQ: NBIS
Key Data Points
The company's Q3 revenue was up by a whopping 355% year over year to $146 million. The multibillion-dollar contracts that Nebius has signed of late suggest that its remarkable growth is sustainable. Microsoft awarded a deal worth $17.4 billion to $19.4 billion to Nebius in September to purchase AI compute capacity from the latter over a five-year period.
Meta has also joined the company's client list with a five-year contract valued at $3 billion. Nebius, therefore, is sitting on a revenue backlog of more than $20 billion. Fortunately, Nebius is now going to boost its data center capacity at a faster pace.
The company was earlier expecting to have 1 GW of contracted data center capacity at its disposal by the end of 2026. It has now bumped up that target to 2.5 GW. Even better, Nebius plans on boosting its active data center capacity from an estimated 220 MW at the end of 2025 to a range of 800 MW to 1 GW by the end of next year.
So there is a good chance of Nebius clocking much faster growth in revenue going forward, and that's what even analysts are expecting from the company.
Data by YCharts.
The verdict
Clearly, both CoreWeave and Nebius are high-growth companies that can help investors capitalize on the AI infrastructure boom. However, when it comes to choosing one of these stocks, there is a clear winner.
Data by YCharts.
CoreWeave stock trades at a significantly cheaper sales multiple right now. In fact, it can be bought at a discount to the U.S. technology sector's average price-to-sales ratio of 8.4, despite its stunning growth. Moreover, CoreWeave has a more diversified customer base and a much bigger backlog, while much of Nebius' growth is currently dependent on just two customers.
Of course, even Nebius can turn out to be a solid investment in the long run, but if you're looking to choose from one of these two neocloud companies right now, CoreWeave looks like a better buy from a valuation standpoint.
