Nebius Is Targeting 540% Data Center Revenue Growth by Year-End. 2 Reasons the Stock Could Still Be Undervalued.

Nebius Group (NASDAQ: NBIS) has been winning big from the artificial intelligence (AI) data center boom, and that's not surprising, as the company plays a central role in the AI infrastructure ecosystem.

Nebius is a neocloud provider that builds dedicated AI data centers equipped with powerful graphics cards. Not surprisingly, Nebius is growing at a stunning pace, as hyperscalers and AI companies have been lining up to rent cloud computing capacity from the company. Investors, however, may be wondering if it still makes sense to buy this cloud computing stock following its stunning rally this year.

After all, Nebius is now trading at 80 times sales. That's quite exorbitant compared to the tech-focused Nasdaq Composite index's price-to-sales ratio of 5.6. However, a closer look at Nebius' revenue pipeline, business model, and the overlooked opportunities it can capitalize on indicates that it is still undervalued.

Let's take a closer look at two reasons why AI stock could indeed be undervalued even after its phenomenal rally.

Nebius' revenue growth rate is poised to multiply significantly this year

Nebius finished 2025 with annualized run rate revenue (ARR) of $1.25 billion. That was a 14x increase over its ARR at the end of 2024. Nebius calculates its ARR by multiplying its AI cloud revenue from the last month of a quarter by 12. The company anticipates that it will exit 2026 with an ARR of $7 billion to $9 billion.

The midpoint of that guidance range suggests that Nebius' ARR will increase by 540% by the end of 2026, as compared to the reading at the end of 2025. Nebius can easily achieve that growth since it has a large revenue backlog to fulfill. Specifically, Nebius has signed contracts worth more than $46 billion with Meta Platforms and Microsoft for providing dedicated AI data center capacity over the next five years. Even better, Nebius' cloud revenue pipeline increased by 3.5x quarter over quarter in Q1, excluding the deals it has signed with hyperscalers such as Meta and Microsoft.

Nebius expects $3.2 billion in revenue in 2026. Its massive backlog and improving revenue pipeline make it clear why analysts are forecasting exponential revenue growth over the next couple of years.

Data by YCharts

If Nebius' revenue indeed hits $20.4 billion in 2028 on account of its massive backlog, its market cap could reach $114 billion even if it trades at the same sales multiple as the Nasdaq Composite index. That points toward terrific gains, as Nebius currently has a market cap of $67 billion. However, this phenomenal revenue growth isn't the only reason why Nebius stock could fly significantly higher.

Investors may be underestimating the growth potential of its software stack

Nebius isn't just a company that builds AI data centers and rents out the hardware to customers. It also offers a software stack that enables customers to build AI agents, develop custom AI software, run inference tasks, and build models as per their needs. Nebius customers can buy tokens to access popular large language models (LLMs) on its platform.

The company's software solutions address the needs of multiple industries, including healthcare, life sciences, media & entertainment, robotics and physical AI, and retail & commerce. The important thing to note is that Nebius anticipates that its software solutions will become a larger part of its revenue mix in the future.

Though it doesn't specify exactly how much revenue it generates from the software side of the business, it appears that this segment's contribution is positively impacting its margins. The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin landed at 32% in the first quarter of 2026, a significant improvement over a negative margin of 106% in the year-ago period.

Nebius is witnessing an improvement in the demand for inference-focused tokens. Given that the demand for AI inference applications is growing rapidly, it won't be surprising to see Nebius' software solutions experiencing stronger demand in the future. This is probably why analysts have become extremely bullish about the company's bottom-line growth potential.

Data by YCharts

The exponential earnings growth Nebius could clock over the next two years indicates the stock could trade at a nice premium to the Nasdaq Composite index's average price-to-earnings ratio of 42. This is another reason I believe Nebius' growth potential isn't fully priced into the stock, even after its tremendous rally this year.

So, investors can still buy this growth stock as it has the potential to fly even higher given its ability to deliver stunning revenue and earnings growth.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.