EU Trade Agreement Could Boost This AI Play
Here's why we're seeing a mixed market reaction to the trade agreement and a stock I'm betting on.
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The E.U.-U.S. trade deal announced over the weekend should be seen as a major positive, as it removes the risk of a trade war and opens European markets to the U.S. with no significant tariffs. The problem is that many of the positives had been well anticipated for a while.
More importantly, the positives of the deal are largely priced into the market, which has made a series of new all-time highs. This has set up a "sell the news" response to the trade deal. Thus the market reaction is mixed on Monday morning.
Some market bulls have been anticipating that earnings reports would trigger a "sell the news" response, but that has not happened. The trade deal catalyst for a reversal was less obvious, and that may be why it worked.
Some market weakness at this point is a positive. Technical conditions have become extreme, and there needs to be some resets if the uptrend is going to continue. The indexes don’t need to drop sharply for that to happen. Some churning and choppiness would help quite a bit.
Breadth on Monday morning is negative with the Russell 2000 IWM lagging slightly while the Magnificent Seven MAGS is leading again. The big-cap AI names will be beneficiaries of the trade deal with the E.U.
A Trade for the Trade Deal
The strength in the artificial intelligence names bodes well for companies that provide the infrastructure and power for AI development. A name that I have been researching as a long-term beneficiary of AI is Nebius Group NV (NBIS).
NBIS is a Netherlands-based company that builds infrastructure for the global AI industry. Its core business is an AI-centric cloud platform that provides large-scale GPU clusters, cloud platforms, and tools tailored for AI and machine learning workloads. NBIS designs proprietary hardware, including servers and data centers, and offers managed services that support AI model development, training, and deployment.
NBIS has a significant partnership with NVIDIA NVDA and uses its advanced GPUs, including the H100, H200, and Blackwell platforms. It also emphasizes energy-efficient, E.U.-compliant infrastructure.
The company has a competitive advantage in Europe and plans to invest over $1 billion in 2025 to expand its European AI infrastructure and a new GPU cluster in Paris. It is tripling its capacity in Finland to 60,000 Nvidia GPUs. The E.U.-U.S. trade deal should be a tailwind to the company.
NBIS also has several subsidiaries with an estimated value of $3.7 billion to $5.7 billion. These include Clickhouse, which is a database management system, Toloka, which is backed by Jeff Bezos and provides training for generative AI, and Avride, which develops autonomous driving technology.
If these subsidiaries are stripped out, the NBIS core AI business is valued at $7 billion-9 billion and is expected to generate $750 million to $1 billion in 2025 and grow at triple digits. This gives it a much more attractive valuation versus CoreWeave CRWV.
NBIS is not currently profitable but grew revenue 385% last quarter and projects EBIT margins of 20%-30% as it scales its operations. The company may need to make significantly more capital investments, but it is at the heart of growth in the AI industry.
On July 13, Goldman Sachs placed a buy rating on the stock with a target price of $68. The analyst stated that Nebius is a leading player in the artificial intelligence neo-cloud market and is well-positioned given its full-stack software offering, cost advantages, and expertise at scale. Goldman sees a positive risk/reward at current share levels.
Technically, the stock is currently in a trading range and is awaiting earnings on the morning of July 31.
I have a small position and will look to expanding it as conditions develop. I expect an opportunity to buy after the earnings reports.
My overall market game plan is to focus on my shopping list and watch for entry points to develop in favored names. While the market is badly in need of some consolidation, I don’t believe that a significant correction is going to occur at this point. We have some excesses in places, but there are still many good values to be found.
At the time of publication, DePorre was long NBIS, NVDA.
