Investors have been on the lookout for artificial intelligence (AI) stocks that could win in the market’s next phase of growth. Companies continue to train models, but now and in the future, these models are being put to use. This stage of thinking and solving complex problems is called reasoning, and it should drive growth in the coming years.
As companies aim to boost training and inference capabilities, they need capacity — and demand has been soaring, according to cloud providers large and small. These AI customers may turn to cloud giants, e.g. letter to run their workloads, or they can choose to partner with smaller specialist players, such as the two I will discuss here: Nebius(NASDAQ: NBIS) and core weaving(NASDAQ: CRWV).
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Which one is a better buy, according to Wall Street? Let’s take a look.
Image source: Getty Images.
Customers come to Nebius for its range of services, such as managed services for Kubernetes, and access to graphics processing units (GPUs) and central processing units (CPUs) for workloads. As Nebius himself says, “We provide all the necessary resources for your artificial intelligence journey.”
All of this has clearly been well-received by customers, as we saw from Nebius’ earnings report. In the most recent quarter, the company sold out all of its production capacity and its revenue soared by more than 300%. Nebius also works with Microsoft, Valued at US$19.4 billion. The company works with meta platformin this case $3 billion.
The main challenge faced by Nebius, as well as CoreWeave, is that it requires significant investment to meet demand. Nebius recently raised more than $4 billion through convertible notes and subsequent equity offerings to invest in GPUs, land and other assets to expand its infrastructure.
CoreWeave focuses on providing customers with high-performance fleets NVIDIA GPU for processing workloads. The company works closely with the leader in AI chips, so it’s the first to make Nvidia’s Blackwell and Blackwell Ultra platforms generally available upon launch. Now, we can probably expect the same thing as Nvidia prepares to release its Rubin platform later this year.
It’s also important to note that Nvidia has over 85% of its portfolio invested in the AI cloud specialist – given Nvidia’s understanding of the AI market, it’s well-positioned to identify future winners.
Like Nebius, CoreWeave has seen triple-digit revenue growth as customers seek the right capacity for their AI workloads. In the most recent quarter, CoreWeave’s revenue grew 133%. CoreWeave will also have to invest in infrastructure to meet that demand, and investors are concerned about its debt levels as the company pursues growth.
The debt-to-asset ratio shows that CoreWeave relies more on debt financing for its operations than Nebius.
CRWV debt and assets (quarterly) data provided by YCharts
Now, let’s consider which stock is a better buy today, according to Wall Street. Both companies have more “buy” recommendations than “hold” or “sell” ratings. Wall Street expects both to climb higher over the next 12 months. Here are the specifics: CoreWeave’s average price target calls for an upside of 43% in that period, while Nebius’s price target implies an upside of 67%.
So while Wall Street recommends buying both stocks, Nebius could deliver the biggest win in the coming year if analysts are right. The company may also be less risky due to its more favorable financial position.
What does this mean to you as an investor? Both stocks could represent interesting AI investments. Each of these companies provides a much-needed service today, and this should continue into the future. While analysts may be more confident in Nebius’ balance sheet, both stocks still carry some risk as they depend on the strength of the AI boom. Therefore, if you are a cautious investor, these players may not be the best choice. But if you’re a growth-focused investor, then you might want to consider buying some Nebius shares – which, if Wall Street is right, could offer the biggest returns over 12 months.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions and recommendations at Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
Nebius vs. CoreWeave: Which does Wall Street think is the better buy? Originally posted by The Motley Fool
