Nebius Group N.V. (NBIS) shares are climbing Thursday after catching the attention of Morgan Stanley analysts, who see potential in the company's ambitious AI infrastructure buildout—even if getting there won't be easy.

Wall Street Takes Notice

Analyst Josh Baer initiated coverage with an equal-weight rating and a $126 price target on Nebius. The target suggests roughly 23.55% upside from current levels, based on the company's aggressive expansion plans and strategic position in the AI infrastructure space. But Baer's not ignoring the elephant in the room: actually pulling off this massive scale-up is going to be challenging.

The Big Bet on AI Cloud Power

Here's what Nebius is attempting: connecting 700MW of power for AI cloud infrastructure by 2026. That's a massive undertaking, and if successful, the company expects to generate between $7 billion and $9 billion in annual recurring revenue by Q4 2026. To put that in perspective, they're currently at $600 million ARR. That's not growth—that's a rocket ship.

"We see Nebius well positioned to bring online significant capacity, scale rapidly, and long-term, we think Nebius can inflect margins and FCF meaningfully positive," Morgan Stanley said in their coverage initiation.

The question, of course, is whether they can actually deliver on these targets. If they do, the current stock price might look like a bargain. If they stumble, well, that's a different story.

Financial Foundation and Strategic Assets

Nebius isn't putting all its eggs in one basket. The company maintains a diverse customer base and holds investments in non-core consolidated businesses that should provide additional revenue streams beyond the primary AI compute services. Their focus on maintaining balance sheet strength and efficient capital access is critical when you're planning the kind of expansion they have in mind.

The Risks Are Real

Growth stories are exciting until you look at the execution risk. Nebius needs to ramp capacity dramatically, and that requires substantial capital expenditures. Morgan Stanley noted that EBIT margins will likely face pressure from ramping depreciation and heavy capex requirements. Profitability in the near term might take a backseat to growth, which means investors need to be comfortable with a longer timeline.

Market Reaction

NBIS Price Action: Nebius Group shares were trading up 2.07% at $104.10 at the time of writing on Thursday.