Applied Digital vs Nebius: Which AI Stock Offers Better Growth Potential?

Two AI Stocks, Two Distinct Strategies

Applied Digital (NASDAQ: APLD) and Nebius (NASDAQ: NBIS) have emerged as two of the most talked-about stocks in the artificial intelligence (AI) sector, with both companies experiencing significant growth over the past year. However, their business models and growth trajectories differ markedly, making them distinct investment options in the rapidly expanding AI market.

Applied Digital focuses on building and leasing data center campuses to cloud, AI, and high-performance computing (HPC) companies. Its core business involves constructing data centers, powering them, and leasing the space to companies that install their own servers. This model positions Applied Digital more as a real estate company than a traditional tech firm, with a focus on long-term leases and stable revenue streams.

In contrast, Nebius provides cloud-based AI infrastructure services to a wide range of industries. The company installs powerful AI servers in its own data centers and offers computing power to clients who prefer not to maintain on-site servers. Nebius has secured major AI infrastructure contracts from tech giants like Microsoft and Meta Platforms, positioning itself as a key player in the AI services market.

Applied Digital's Evolving Business Model

Applied Digital initially targeted Bitcoin miners and blockchain companies but pivoted to the cloud, AI, and HPC markets in 2022. In 2023, the company launched Sai Computing, a subsidiary offering cloud-based AI infrastructure services powered by Nvidia's high-end GPUs. However, this venture was unprofitable and competed with some of Applied Digital's existing data center hosting clients, including Amazon and Microsoft.

To address these challenges, Applied Digital plans to spin off Sai's cloud computing business and merge it with EKSO Bionics Holdings to create ChronoScale, a new company. This move is expected to throttle Applied Digital's near-term growth but will allow the company to focus on its core data center hosting business, which has already secured $16 billion in lease payments over the next 15 years.

Despite these strategic shifts, Applied Digital faces ongoing losses, which may delay its plans to become a real estate investment trust (REIT). Analysts project the company's revenue to rise 38% to $297 million for fiscal 2026, but its enterprise value of $8 billion makes it appear expensive at 27 times this year's sales.

Nebius' Rebranding and Growth Surge

Nebius, formerly known as Yandex, was forced to suspend its shares in 2022 due to sanctions against Russia. The company relocated to the Netherlands, spun off its Russian assets, and rebranded as Nebius, focusing on cloud-based AI infrastructure services. Nebius has positioned itself as a 'full stack' AI infrastructure provider, integrating managed software services into customized AI solutions for data training, edtech, automation, and robotics markets.

Nebius has already secured significant AI infrastructure contracts from Microsoft and Meta Platforms, with analysts projecting its revenue to surge 521% to $3.45 billion in 2026 and reach $7.8 billion in 2027. Although the company remains unprofitable as it expands its data center capacity, economies of scale are expected to reduce costs over time. With an enterprise value of $24 billion, Nebius is trading at seven times this year's sales, which may be reasonable given its growth potential.

While both Applied Digital and Nebius are poised to benefit from the expanding AI market, Nebius' stronger growth rates, lower valuation, and clearer strategic focus make it a more attractive investment option at present. Applied Digital will need to carefully manage its spin-off of ChronoScale and the expansion of its data center capacity to demonstrate the sustainability of its business model.