Shares of neocloud provider Nebius popped on Thursday after an upgrade based on its pricing power. Rival CoreWeave got one, too-for the same reason-but its stock gain wasn't nearly as strong.
Nebius advanced 9.5% to $248.90, while CoreWeave was up less than half of that-3.8% to $90.14. Nebius has soared 193% this year; CoreWeave is up a much more muted 25%.
Wall Street likes the neocloud sector, the business of selling artificial-intelligence computing power, which was pioneered by CoreWeave.
And that clearly isn't changing any time soon.
J.P. Morgan's Samik Chatterjee raised his rating for CoreWeave to Overweight from Neutral and hike his price target to $125 from $120.
Daniel Wang, of BNP Paribas Equity Research, changed his rating for Nebius to Outperform from Neutral and raised his price target to $399 from $260.
The rationale of both analysts: neocloud providers charge more for AI computing power as demand for AI compute accelerates.
Hourly rental fees for computing power have already increased about 33% since December, Northland Equity Capital Markets has estimated.
Chatterjee said the pricing-demand dynamic plus CoreWeave's willingness to enter short-term contracts at premium pricing could prop up the company's revenue and margins.
The one-two punch will lead to gains even though the stock has been range-bound this year, he wrote in a research note.
Generally speaking, Wall Street thinks CoreWeave can reduce the high costs associated with AI cloud infrastructure.
Two big contracts that Nebuis has-with Meta Platforms and Microsoft-are a sign of more good things to come, Wang, meanwhile, pointed out. Those two agreements should wrap up early next year.
"We expect incremental capacity from Q2 onwards to increasingly reflect higher priced AI cloud contracts," Wang said in the research note.
Bank of America's Tal Liani on Thursday also kept his Buy rating on Nebius along with its $310 price target.
Liani said Nebius is using long-duration hyperscaler contracts to "establish a stable utilization base" while reserving a portion of its capacity for one- to three-year contracts priced at roughly two times what hyperscalers are charging.
That, of course, substantially increases revenue per watt, he wrote. Watts is how neocloud providers sell AI computing power.
Hyperscaler rental rates for compute have eclipsed the rates of many neocloud providers, but Nebius and CoreWeave have flipped the script with short-term contracts that lock in higher pricing.
"We believe this allocation strategy enables the company to generate meaningfully higher revenue from a given level of capacity than is currently reflected in Street estimates," Liani said of Nebius.
Many AI infrastructure providers have five- to six-year contracts, which Nebius thinks of as "primarily as a way to obtain attractive financing rates and support infrastructure expansion," he wrote.
"Beyond one to three year agreements, we believe Nebius is increasingly creating opportunities to sell compute through shorter three to six month contracts, particularly as enterprise AI adoption accelerates and compute requirements remain highly dynamic."
Liani added shorter contracts are less visible to investors, but they command the highest pricing.
"Nebius' business model should be evaluated not only on the number of megawatts deployed, but on the revenue generated per megawatt," Liani said.
With Nebius and CoreWeave expanding their capacity, strong pricing per watt is only a positive-as long as AI demand remains robust.
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