Hi All,
RBRK and NBIS were on my watch list. I think both are great companies. Here’s my thought process.
Rubrik, the leading provider of cloud data backup for companies, is growing revenues by about 54%. It’s stock price has shot up about 192% over the last 12 months, and it’s non-GAAP gross margins have grown from 75% to 81%. However, it’s non-GAAP net losses have not improved proportionally with the revenue increases. In fact, over the last 3 quarters it’s gone from -0.21 to -0.18 to -0.15 dollars a share over the last 3 quarters.. The free cash flow has been lumpy too with 15.6 to 75 to 33.3 million dollars. I’m watching for a good entry point on this stock, but I would like to see more consistent cash and earnings growth and a lower stock price before I jump in.
Nebius Group is a company headquartered in Amsterdam (R&D) and the Netherlands. They used to own Yandex (Google of Russia), but divested it. They are involved in a bunch of interesting startups Toloka is a data partner for AI development, AV ride, which develops autonomous cars and delivery robots, and TripleTen, a a edtech platform to provide upskilled people in various tech development. All of the startups are doing well and their equity is leveraged to provide low cost capital for AI data Centers. Aditionally, NVidia invested $700 million in NBIS. Because the data centers are new, they will have a modular design that allows of continual upgrades for hardware and cooling as newer chips become available. NBIS designs its own servers to minimize downtime and prevent training corruption. Their data centers achieve a Power Usage Efficiency ~1.13 which is comparable to hyperscalers (a PUE of 1.2 means that for every watt of energy used by the IT equipment, an additional 0.2 watts are used for cooling and other infrastructure). Currently, industry depreciates GPU chips on a 3 year cycle, so flexibility is key. NBIS increased its revenue by 122% in a year, and it expects to acheive profitability by the second half of the year.
I like to see high revenue growth paired improving profitability, so I will 10 times out of 10 move toward a company that is better at turning growth into hard currency. I’ve decided to move my cash from NVDA directly to NBIS because I think it’s a better growth opportunity.
I am looking for an entry into RBRK maybe 10% lower and I’ll start building a position.
I already own NBIS and I am buying more little chunks on pullbacks. What has triggered me to probably double my holding from 4% to probably 8% are two things:
First competitor CRWV valuation has gotten excessive and is almost in meme territory. I think NBIS has been overlooked due to lower revenue and lack of big hyper scalar customers. CRWV has a PS of 76, NBIS has a PS of 74. And revenue growth rate is about equivalent. NBIS is not cash flow positive by a long shot.
Second I believe the valuation of the companies on its platform that it holds some ownership is not reflected in its valuation. I believe these are overlooked and relatively unknown companies that are growing fast. I have read some estimates
So the analyst estimated value of Nebius holdings is already $5.8B on a $11B NBIS market cap. This means the NBIS AI platform service value is is only about half of its market cap and published PS is overstated by double. Even if these holdings are off by 25%, NBIS is still priced lower. Of course the NBIS risk is the revenue growth and the reality of its promoted architectural and cost advantages.
Whilst I had both Rubrik and NBIS at similar sized holdings and both with similar gains, I actually took the opportunity to top up Rubrik after their latest results and pull back (as well as adding to CyberArk), rather than topping up NBIS.
Whilst I do also hold ZScaler, Crowdstrike and SentinelOne in the cyber security space, I happen to also hold Nvidia, SuperMicro, Astera Labs, Credo and Micron in the AI infra space but felt that whilst both RBRK and NBIS hold similar upside potential, Nebius has more uncertainty around its non-core elements to its business, faces more exposure to capital intensive debt funded outlays whilst in a negative cash flow situation and is less defensively positioned vs Cyber Security from a macro and trade war risk position.
I would have happily invested in both had I possessed more capital to deploy but in weighing up the head to head choice with the top up I could make I actually sided with Rubrik.
I completely get and agree with your NBIS arguments though.
I fully agree with you on Nebius. The confident management projection that they will achieve Positive Non-GAAP EBITDA in the second half of this year will be a massive boost to sentiment if they achieve this (which I expect them to). It is quite amazing that, because of the insight they have into future revenues, that they can project EBITDA positivity in such a short time frame. Going from such a loss to positivity in such a short time is truly amazing.
This, along with the annual run rate forecast of 750m to 1B, and with their cash pile of 2.4B (after the recent cash raise), as well as the speed at which they are building data centres and their highly experienced team makes me confident in their performance.
Its been in my portfolio all year since January and it grew to be my number 1 holding a few weeks later. And even after trimming it last month, it is still my largest holding at 29% of my portfolio today.
Isn’t a negative gross income and a gross margin of -42% are significant red flag for NBIS?
This level of negative margin reflects severe cost inefficiencies and a core operational imbalance, undermining profitability and financial stability. Such metrics raise serious concerns about the sustainability of the business model, cash flow pressures, and the company’s ability to deliver shareholder value.
Its true they are far from being profitable at the moment (they are in hyper growth stage), but their GAAP Gross Profit Margin is plus 47% (I’m not sure where you got -42 from), and this will grow over time as it already has been doing.
That is what my broker shows (not sure why). I did some research and found that WSJ also shows negative gross income due to they include DA in COGS.
Sales/Revenue 55,300.0
Cost of Goods Sold (COGS) incl. D&A 78,700.0
Gross Income (23,400.0)
Gross Profit Margin -28.26%
I checked actual reporting and it matches WSJ numbers:
Revenues 55.3
Cost of revenues 29.5
DA 49.2
I’m not sure if the D part of their data center equipment, servers, and other hardware directly involved in providing AI cloud services. Isn’t it a concern? I’m not talking about net margin due to it’s normal for a newer company to have negative net margin.
Gross Margin doesn’t include Capex. Its revenue minus Cogs. In the last quarter revenue was 55.3m. Cogs were 29.5. Therefore Gross Profit was plus 25.8m which is a GM of plus 47%.