AI Upstart Nebius Soars After Huge $17 Billion Microsoft Deal
Is the Dutch AI cloud firm a good investment after announcing the headline deal?
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The news broke a couple of hours after the closing bell on Monday evening.
Shares of Nebius Group NBIS soared more than 50% overnight after the Amsterdam-headquartered AI-infrastructure firm announced an agreement with U.S. tech giant Microsoft MSFT. Microsoft is a long-time holding of your author's. Readers should be cognizant of the fact that Nebius, though a Dutch firm, is directly listed at the Nasdaq. These are actual shares we are discussing here, not American Depository Receipts.
The deal is said by the firm to be worth $17.4 billion over the next five years and could rise to $19.4 billion according to a Form 6-K filed with the SEC, should Microsoft purchase additional capacity. At Monday's closing bell, Nebius ran with a market cap of $15.3 billion, so this deal is not just huge, it is huge. As part of the announced deal, Nebius will deliver dedicated capacity to Microsoft from its new data center located at Vineland, New Jersey to start later this calendar year.
Founder and CEO Arkady Volozh commented:
"We have also said that, in addition to our core business, we expect to secure significant long-term committed contracts with leading AI labs and big tech companies. I'm happy to announce the first of these contracts, and I believe there are more to come. The economics of the deal are attractive in their own right, but, significantly, the deal will also help us to accelerate the growth of our AI cloud business even further in 2026 and beyond."
Who Is Nebius?
The firm is described as a technology infrastructure company or now primarily an AI-infrastructure company engaged in the development of a portfolio of AI-focused assets.
The firm offers its products and services on a global scale such as cloud-based platforms, GPU clusters and tools for developers as well as full-stack infrastructure products aimed at servicing hyperscalers and the growth of the AI-industry. CoreWeave CRWV would be considered a direct competitor.
Nebius was once the international arm of the Russian tech firm Yandex. In 2024, due the ongoing war in Ukraine and the subsequent sanctions on Russian businesses, all Russian assets were sold and the name was changed to that of the global business.
Month and a Half to Go
Nebius is expected to report the firm's next quarterly results in late October. Consensus is for an adjusted EPS of -$0.42 on revenue of just $157.1 million. While that number looked small, it would have been good for year-over-year growth of more than 260%, which was actually a deceleration from prior quarters. Those numbers, however, will not be in focus.
The guidance issued will be what investors seek. Investors will also want to hear if the firm can possibly land other hyperscalers as customers and if they can, then can they meet the growing demand? The stock traded at 82-times forward-looking earnings as that bell rang on Monday. That is now neither here nor there. Obviously, the stock is trading much higher. Just as obvious is the fact that those forward earnings are no longer worth a second's consideration.
Don't even ask about the fundamentals. There haven't really been cash flows, but the balance sheet is quite strong. The firm ended the June quarter with a cash position of $1.679 billion and a debt load of roughly $986 million. The firm's current ratio at that time was 14.7. Not a misprint.
The Chart
Readers will see that NBIS has created a huge gap on Tuesday morning. This follows a still unfilled gap created last earnings season in early August. The stock is trying to break out beyond the previously untested upper trendline of an upward sloping Andrews' pitchfork model. Very suddenly, both relative strength and the stock's daily MACD indicator have gone from a bearish posture to an overly optimistic look.
Would I buy this move? No. Not today. Not above the upper trendline of my Pitchfork model... unless that line shows up as support.
Short NBIS today? Maybe with fun money, but make sure you respect the 8% rule. For guidance on the 8% rule, refer to my short piece at the Doug Kass Diary from last Friday: "Doug's Daily Diary - TheStreet Pro."
I might think about writing September 26 $75 puts for about $1.50 if the liquidity is there to do so if I wanted to get paid to take on discounted equity risk in the name. That seems more prudent than chasing. If I were long the shares coming in (I am not), I would try to use this move to get down to house money.
At the time of publication, DePorre was long MSFT equity.
