Nebius Group N.V. NBIS is an upcoming player in the AI-infrastructure market, while Microsoft Corporation MSFT is an established tech behemoth. Microsoft’s Azure cloud platform is the second-largest cloud platform after Amazon Web Services or the AWS platform. MSFT’s investment in OpenAI has made it the go-to platform for innovative AI applications.

The rapid AI proliferation is transforming the entire tech scene, and AI infrastructure has become a high-stakes battleground for tech companies. Per an IDC report, spending on AI infrastructure is expected to top $200 billion by 2028. This uptrend in spending benefits both Microsoft and Nebius, but not equally. So, if an investor wants to make a smart buy in AI infrastructure space, which stock stands out?

Let us delve a little deeper into the companies’ strengths and weaknesses to see which is the better stock pick?

The Case for Nebius

Based in Amsterdam, Nebius is positioning itself as a specialized AI infrastructure company. Its core operation is Nebius, which is an AI-powered cloud platform designed for intensive AI and ML workloads in both owned and colocation data center capacity. NBIS leverages NVIDIA’s NVDA Reference Architecture to build its AI cloud platform. NBIS also builds full-stack infrastructure for AI, like large-scale graphics processing units or GPU clusters, cloud platforms, and tools and services for developers. Other notable offerings include Toloka, an AI development platform; TripleTen, an edtech service; and Avride, an autonomous vehicle platform.

It is focused on boosting data center footprint and its GPU deployments as a part of its strategy to ramp up installed capacity across the United States and Europe in 2025. The company is aggressively expanding its footprint in the United States and launched its first NVIDIA GPU cluster in Kansas City (5MW initial phase) in November 2024. The facility will initially house thousands of NVIDIA’s Hopper GPUs, with the NVIDIA Blackwell platform anticipated to arrive in 2025. The facility is expandable to 40MW. Establishing facilities in the United States means lower latency while serving domestic clients and boosting the advantages of the AI-native cloud. It is focusing on establishing more GPU clusters across the United States amid soaring demand for high-quality AI infrastructure.

In March 2025, NBIS also announced the setting up of a new data center in New Jersey. This data center will ‍boast a total capacity of 300 MW, and the first phase is expected to be completed by the summer of 2025. The same day, it also announced incremental capacity additions at its existing colocation facility in Kansas City. The additional capacity is expected to come online by the end of the second quarter of 2025. As it expands AI infrastructure in Europe, NBIS also announced a new colocation deployment in Keflavik, Iceland.

Given these developments, NBIS targets a revenue run rate of $750 million to $1 billion for 2025. NBIS also boasts a strong balance sheet, as it raised $700 million in a private placement with investors, including NVIDIA, Accel and Orbis, in December 2024. NBIS had $2.4 billion in cash at the end of the fourth quarter of 2024.

Growth prospects are muted in the near term for NBIS, given a challenging global macroeconomic environment. Increasing lead times as customers become more selective are expected to weigh on the top-line expansion. NBIS is investing significantly in expanding capacity, which is expected to keep margins under pressure, at least in the near term.

The Case for Microsoft

While NBIS is an early-stage player, Microsoft is one of the dominant names in the AI infrastructure space with its Azure platform, which also boasts a global data center coverage. Azure’s increased availability in more than 60 announced regions globally is further strengthening the company’s competitive position in the cloud computing market.

Microsoft is investing aggressively in AI infrastructure, including building its own custom AI chips like Azure Maia and Azure Cobalt.

MSFT’s multi-billion-dollar investment in OpenAI has been a game changer, while NBIS is still in the early stages of building a partner ecosystem. Microsoft is the exclusive cloud provider to OpenAI, with all workloads hosted on Azure platform. Its exclusive partnership with OpenAI gives Azure cloud the priority to access to leading AI models like GPT-4 Turbo, and DALL·E. MSFT is also embedding OpenAI’s models (like GPT-4) directly into its services like Copilot, Azure and Bing. This vertical integration is aimed at creating cross-selling opportunities, allowing Microsoft to boost monetization.

The rising adoption of enterprise capabilities of Azure OpenAI and Copilot across Microsoft 365, Dynamics 365, and Power Platform bodes well. With Azure AI, Microsoft is building out the app server for the AI wave, providing access to the most diverse selection of models to meet customers’ unique cost, latency and design considerations. The number of Azure AI customers and average spending continue to grow. The company has more than 60,000 Azure AI customers.

In the last reported quarter, Microsoft Cloud revenues were $40.9 billion and grew 21%. Azure and other cloud services revenues grew 31%. Azure growth included 13 points from AI services, which grew 157% year over year. This was much ahead of expectations even as demand continued to be higher than the available capacity. Microsoft now expects Azure revenue growth at constant currency between 31% and 32% in the fiscal third quarter. Moreover, MSFT’s cash pile of $71.55 billion dwarfs that of NBIS.

MSFT Shares Resilient Than NBIS

Both MSFT and NBIS shares have suffered from tech sell-offs in the past month due to the escalating trade war situation. However, MSFT has lost 3.1% while NBIS’ decline stands at a staggering 17.9%.

Image Source: Zacks Investment Research

Valuation for MSFT & NBIS

Valuation-wise, both Microsoft and Nebius are overvalued, as suggested by the Value Score of D and the Value Score of F, respectively.

In terms of Price/Book, NBIS shares are trading at 1.52X, lower than MSFT’s 9.13X.

Image Source: Zacks Investment Research

How Do Zacks Estimates Compare for NBIS & MSFT?

Analysts have significantly revised their earnings estimates downward for NBIS’ bottom line.

Image Source: Zacks Investment Research

While for MSFT, there is a marginal downward revision.

Image Source: Zacks Investment Research

NBIS or MSFT: Which is a Better Pick?

NBIS is carving out a niche for itself in the AI infrastructure space, while MSFT is a force to be reckoned with. If investors are seeking an AI infrastructure stock with long-term growth potential, Microsoft is a better pick.

Currently, Microsoft has a Zacks Rank #3 (Hold), making the stock a stronger pick compared with Nebius, which has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Nebius Group N.V. (NBIS) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research