Nebius Hit by Capacity Delays and Rising AI Infrastructure Costs Despite Strong Revenue Growth

Strong AI Demand Meets a Costly Expansion Challenge

Nebius Group (NBIS) shares fell approximately 15% on Thursday, November 12, after the artificial intelligence cloud provider reported stronger-than-expected third-quarter results but warned that delays in bringing new computing capacity online would push some revenue into 2027.

The company also raised its capital expenditure plans significantly, highlighting the financial demands of expanding AI data centers. The selloff coincided with broader weakness across AI infrastructure stocks following the resignation of Nvidia (NVDA) CEO Jensen Huang.

Key Points

• Revenue timing shifts: Nebius reported strong third-quarter growth but now expects 2026 revenue at the low end of its previous guidance because of delayed data center capacity.
• Expansion costs increase: The company raised its 2026 capital spending outlook to approximately $27 billion and expects another $40 billion to $45 billion in 2027.
• Financing takes center stage: Customer prepayments and contract-backed financing are expected to fund most of next year's expansion, but investors remain focused on execution and cash requirements.

Nebius Revenue Surges as Capacity Delays Weigh on Guidance

Nebius reported third-quarter revenue of approximately $981 million, an increase of more than sixfold from the previous year and comfortably above analysts' expectations of roughly $907 million. The company also reported a loss of $0.13 per share, narrower than both the year-earlier loss of $0.50 and Wall Street's expected loss of $0.72. Growth was supported by additional computing capacity becoming operational and approximately $325 million in nonrecurring revenue from its asset-light partnership model.

Demand for AI computing remained strong. Nebius signed more than $12 billion in new contract value since the beginning of the quarter, while pricing on new GPU computing agreements increased more than 20% sequentially. Profitability also improved on an adjusted basis: adjusted EBITDA, a measure of operating earnings before certain expenses, nearly doubled from the previous quarter to approximately $466 million, and the adjusted EBITDA margin expanded to 47.5% as additional capacity became available.

However, those improvements were overshadowed by a change in the timing of future revenue. CEO Arkady Volozh said delays at several third-party data center facilities would push some capacity deployments into the first half of 2027. As a result, Nebius now expects full-year 2026 revenue near the low end of its previously announced $3 billion to $3.4 billion range. The company emphasized that the underlying customer contracts remain in place and that the issue is primarily when the associated capacity becomes operational and begins generating revenue.

One important example involves Nebius's agreement with Microsoft (MSFT). The company expects to deliver more than half of the contracted capacity at its New Jersey facility by year-end, with the remaining portions now scheduled for the second quarter of 2027. The delays also shifted Nebius's target for annualized run-rate revenue (ARR) of more than $7 billion from December to approximately February 2027. ARR represents the annual revenue pace implied by currently operating capacity and contracts rather than revenue already recognized over a full year.

Why Did Nebius Stock Fall Despite Strong Earnings?

The market reaction reflected concerns about the cost and timing of Nebius's expansion rather than a lack of customer demand. Nebius raised its expected 2026 capital expenditures to approximately $27 billion, compared with its earlier estimate of $20 billion to $25 billion. For 2027, management expects spending between $40 billion and $45 billion, substantially above the approximately $29 billion analysts had anticipated.

Capital expenditures represent investments in long-term assets, including data centers, computing equipment, and supporting infrastructure. For AI cloud providers, these investments are essential to expanding capacity but require substantial funding before the resulting revenue is fully realized. Nebius's updated spending outlook therefore raised questions about how quickly new facilities can be completed and how the company will finance the expansion.

The company continues to report negative operating cash flow, while depreciation and interest expenses remain significant. Third-quarter interest expense reached approximately $113 million, illustrating the financing costs of its capital-intensive business model. Nebius has already arranged substantial funding, including a $3.5 billion secured credit facility from Citi and outstanding convertible debt.

Management has also emphasized the growing importance of customer prepayments, which allow customers to commit funding ahead of capacity delivery and reduce the amount Nebius must finance independently. The company reported that prepayments associated with new third-quarter agreements covered more than the related capital expenditures, compared with lower coverage during the previous quarter. Despite that improvement, the scale of planned spending remains substantial.

The selloff also occurred during a broader decline in AI infrastructure stocks. Nvidia's leadership change introduced additional uncertainty for companies connected to its technology and financing ecosystem, and Nebius, in which Nvidia holds a significant investment, was among those affected. Rival CoreWeave (CRWV) also declined after a strong previous session, while Applied Digital (APLD) and other AI infrastructure providers faced selling pressure. The reaction underscored investor sensitivity to financing costs, deployment schedules, and the sustainability of rapid infrastructure expansion.

Financing Plans and 2027 Revenue Outlook Become the Next Focus

Despite the near-term delays, Nebius maintained an ambitious expansion strategy. Management introduced a 2027 revenue outlook of $12 billion to $13 billion, broadly consistent with existing Wall Street expectations, which the company described as reflecting a conservative approach to the pace of its infrastructure buildout. Nebius also continues to target more than one gigawatt of additional computing capacity coming online annually.

To support that expansion, management expects customer prepayments and financing backed by contracts with investment-grade customers to cover approximately 75% to 85% of planned 2027 capital expenditures. Customer prepayments alone are projected to reach $17 billion to $20 billion next year. These arrangements are central to Nebius's financing strategy because they connect infrastructure investment more directly to committed customer demand, and management has argued that its ability to secure favorable pricing and contract terms provides additional support for its plans. Nevertheless, the remaining funding requirements will still need to be addressed through available financing sources.

The company also expects to reach pretax breakeven by the end of 2027, an objective that depends on continued revenue growth, timely deployment of contracted capacity, and management of financing and operating costs. Execution remains a central consideration. Delays at third-party facilities have already shown how infrastructure constraints can affect revenue recognition even when customer demand remains strong, so the pace at which Nebius delivers its Microsoft-related capacity and other contracted projects will be important in evaluating its progress.

What It Means for Investors

Nebius's latest results illustrate a growing distinction within the AI infrastructure market between demand for computing power and the financial requirements of supplying it. The market reaction suggests investors are placing greater emphasis on the timing of revenue recognition and the funding required to support expansion, particularly as borrowing costs and cash flow remain important considerations for rapidly expanding AI cloud providers. Customer prepayments provide an important source of funding, but their effectiveness will depend on the continued execution of contracted projects.

For investors following NBIS stock, the key developments are the completion of delayed capacity deployments, the conversion of customer contracts into recognized revenue, and the company's progress toward its financing and profitability objectives. The broader selloff across Nvidia-linked infrastructure companies also shows how sector sentiment can influence individual stocks even when their reported operating performance remains strong.

Conclusion

Nebius delivered strong third-quarter revenue growth and improving adjusted profitability, but delays in bringing new capacity online and a substantial increase in planned spending shifted investor attention toward execution and financing risks. Management expects the delayed revenue to move into 2027 and maintains that customer prepayments and contract-backed financing will cover most of next year's capital expenditures. The company's ability to deliver new capacity on schedule, manage its funding requirements, and convert growing demand into sustainable cash flow will remain central to its next phase of expansion.

FAQs

Why did Nebius stock fall after its third-quarter earnings?

Nebius shares fell approximately 15% after the company lowered its 2026 revenue expectations to the low end of its previous guidance and raised its capital spending plans. Delays in bringing new data center capacity online also increased investor concerns about execution and financing.

How much revenue did Nebius report in the third quarter of 2026?

Nebius reported approximately $981 million in third-quarter revenue, representing growth of more than sixfold from the previous year and exceeding analysts' expectations of roughly $907 million.

Why did Nebius lower its 2026 revenue outlook?

Nebius lowered its revenue expectations because delays at third-party data center facilities pushed some planned capacity deployments into 2027. The company said the associated customer contracts remain in place.

How much does Nebius expect to spend on AI infrastructure in 2027?

Nebius expects capital expenditures of approximately $40 billion to $45 billion in 2027. Management anticipates that customer prepayments and financing backed by existing contracts will cover about 75% to 85% of that spending.

What is Nebius's revenue outlook for 2027?

Nebius expects 2027 revenue between $12 billion and $13 billion. The forecast reflects a conservative approach to the pace of its infrastructure expansion.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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