Nebius Earnings: The good, the bad, and our Strategy

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Welcome to our new subscribers! We’re excited to have you with us as we continue our journey to educate and highlight some of our favorite stock picks. This week, we're focusing on the recent Nebius earnings that took place Tuesday before the market opened. As our followers may know we have been following this stock for a while and have been huge fans of the business model, the management team, and the recent deals that the company has made. We will also be breaking down our investment strategy but want to encourage our readers to not take this as financial advice and to do your own research on this fast-paced stock.

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The Numbers:

Nebius reported its third-quarter 2025 results on Tuesday morning, posting revenue of $146.1 million, up about 355% year-over-year, which was below the wall street consensus of 155 million, but we are not worried, as the Microsoft deal has not yet been factored in. The company also reported a net loss of $119.6 million, due to heavy spending on infrastructure and data center expansion. A number that Wallstreet loves to use to measure the growth of a company is the annualized run-rate revenue (ARR), which reached roughly $551 million at the end of the quarter, and capital expenditures surged to $955 million. We are seeing this as a massive positive for the company as it highlights the companies aggressive build-out strategy to meet AI-driven cloud demand.

The Negatives:

There are a lot of positives that we want to highlight from the earnings call but we also think that it is very important to highlight the negatives and where we could see some cracks in the foundation when it comes to Nebius. The first is the company’s announcement of a 10% dilution of shares to raise capital to help fund the massive deal they have obtained from Microsoft. With the deal making up a massive amount of the revenue, and a huge commitment on GPUs, we do think that we could continue to see dilution in the near future. Similar to our recent take on SOFI, we think that when there is any stock dilution, the market usually reacts negatively, but then over the next coming months the company is more likely to continue to grow based on the new net capital that they have obtained in the ATM deal. The details of the At The Market (ATM) deal includes 25 million shares being added to the market at market price. Although the shares have not been issued yet and the prospectus does not come out to the public for some time, we can guess it will be around $2,500,000,000, minus fees which could leave the company with around 2 billion dollars in extra cash to help to continue growth. Overall, this negative does not worry us.

Another negative that we noted is the comment that management pointed to regarding capacity constraints as the reason for the revenue shortfall, noting that many of its data centers are effectively “sold out.” Management said that every available megawatt of capacity for this quarter was already committed, which means that all the compute/datacenter infrastructure is already being used. They specifically referred to the scenario where new sites go live, and before or as they launch, they already have contracts in place for nearly all the available capacity. Their Israel and Uk data centers have already sold out before even coming online and emphasized that the biggest bottleneck is capacity, which could stunt their revenue growth. This is a negative that we are closely keeping an eye on, and we are hoping that the ATM deal that we previously talked about could help the company keep building and building data centers. The company needs to get to work right away on building more data centers and doing this fast, because the demand is clearly there.

As a breakdown, the company currently has a major data center in NJ, which is online and generating revenue, and revenue for the Israel and UK data centers should begin in around a month, and take about 6-12 weeks to generate revenue, so most likely won’t show up in the next earnings report either. After the research we have done and the cash the company currently has on hand, we are predicting more data center announcements over the next couple of months. There is a public report that Nebius purchased 79.33 acres in Alabama for about $90 million, which suggests the company could possibly expand operations down there, with a statement from management that they are securing strategic high-quality and well-located land plots with reliable providers. These positives we think could help with this major negative announcement from management

The Positives:

The first major announcement that will play into our math that we are doing is the announcement of management of a deal with META. This is massive news for the company, with the deal of around 3 billion dollars over the course of 5 years, depending on obligations being met, with Nebius delivering high performance AI cloud infrastructure and data center use.

Despite all of these negatives, management reaffirmed its full-year 2025 guidance, calling for total revenue of $500 to $550 million and ARR between $900 million and $1.1 billion by year-end. The company also maintained its ambitious 2026 ARR target of $7 to $9 billion, underscoring its confidence in continued growth as new infrastructure comes online. This ARR would suggest that the company is expecting a TENFOLD increase in recurring revenue in the next 12-14 months. Either the management team is crazy, or they may be expecting more deals to be closed within the next 6-8 months that could help them achieve this goal.

To break this down to see where the gap comes from, the two biggest deals that have been announced by the company, META and Microsoft, add up to an annualized ARR of around 4.1 billion, 3.5 coming from Microsoft and .6 coming from Meta. Combining this with the current ARR of .5, this brings the total to around 4.6 billion ARR. Doing this simplified math we are seeing a gap of around 3-4 billion dollars. This would mean that to reach this goal the company would have to add another deal that is the same size as the Microsoft deal, or many smaller deals that add up to this amount. This is an ambitious goal, with the company already saying that they are seeing a bottleneck. We do trust the management team and think they know better than to make empty promises that they can’t deliver on.

How we are investing:

After the comment the management team made about the bottleneck capacity, as well as the announcement of an ATM share dilution underwriting deal, the stock took a fall throughout the week ending at around $95. This news was coupled with the whole industry being down on the day. Right away we jumped on the opportunity to buy. The company just made a massive tenfold prediction in the earnings call as well as announcing a deal with Meta, two major positives. The company missed on revenue because of the bottleneck announced, but we think this doesn’t take into account the data centers that have not come online yet in Israel and the UK, as well as any revenue from either one of the two massive deals that it has obtained. The dilution may hurt the stock short term, understandably so, as EPS falls, but overall we are very bullish that a company that made a massive bet on itself by using the cash to keep expanding and meeting demand.

The information provided in this newsletter is for educational and informational purposes only and should not be considered financial, investment, or legal advice. I am not a licensed financial advisor, and the opinions expressed are my own. Any investments, trades, or financial decisions you make are at your own risk. Always do your own research and consult with a qualified professional before making financial decisions. Past performance is not indicative of future results

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