DCF model suggests Nebius stock is 'overvalued' - but should you sell?

Core Viewpoint - Nebius Group's stock is currently considered overvalued according to a Discounted Cash Flow (DCF) model, despite a significant rally following a $27 billion infrastructure deal with Meta Platforms [1][2][6]. Valuation Analysis - The DCF model employs aggressive assumptions, including a revenue target of $3.2 billion for the current year and a 45% compound annual growth rate (CAGR) through the end of the decade [3]. - The model estimates an intrinsic value of nearly $94 for Nebius shares, while the stock is trading around $130, indicating a 38% premium over its fundamental value [4][3]. - The market appears to be pricing in an overly optimistic scenario that exceeds the company's guidance, with shares trading more on momentum than on current cash flow fundamentals [4]. Market Sentiment - Despite the overvaluation indicated by the DCF model, Nebius stock is experiencing a surge due to a "security of supply" premium, as the company has secured significant contracts with Meta and Microsoft [7]. - A recent $2 billion investment from Nvidia is viewed as a de-risking event that could lower the firm's perceived weighted average cost of capital (WACC), potentially increasing the DCF fair value [8]. - Wall Street maintains a bullish outlook on Nebius, with a consensus rating of "moderate buy" and a mean target price of about $154, suggesting a potential upside of 20% from current levels [8]. Investment Perspective - For value investors, Nebius's valuation appears stretched with a price-to-sales (P/S) multiple of approximately 54x [9]. - Growth investors may justify the current price based on the belief that the $27 billion agreement with Meta is just the beginning of future growth opportunities [9].