Citigroup Maintains Buy Rating on Nebius with Target Price of $278

In its latest report, Citigroup stated that Nebius's current growth bottleneck is the pace of capacity ramp-up rather than demand. The firm maintains a "Buy/High Risk" rating on Nebius with a target price of $278. The report noted that Nebius's revenue in the second quarter was strong, driven by asset SLA revenue, Token Factory, Tavily, higher utilization rates, and on-demand demand. Management indicated that market demand remains robust, with multiple buyers for each GPU, and the backlog growth comes from larger average order sizes and an increase in mid-term contracts in the core AI cloud business. Citigroup mentioned that approximately 50%-60% of Nebius's infrastructure capital expenditures are supported by customer prepayments, with project payback periods potentially under one year, around 10 months. The second half of the year will be a test, as Nebius expects most of the contracted capacity to come online in the second half of 2026, with Microsoft's related deployments following a similar pace. The target of 800MW to 1GW of connected power remains achievable, but transitioning to active power will require network testing, integration, and debugging, leading to a delay in revenue recognition. Management stated that the $7 billion to $9 billion ARR framework is driven by utilization, pricing, and capacity growth. Citigroup cautioned that Nebius is a high-risk asset, with risks including customer concentration, high capital expenditure intensity, GPU supply, and uncertain financing conditions, with the stock price highly dependent on the delivery pace.

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