Shares of Nebius Group N.V. (NASDAQ:NBIS) tumbled 10.8% to $221.49 in Wednesday trading after the company unveiled a $4.5 billion convertible note offering. The move underscores the immense capital demands of its AI infrastructure expansion, with the initial deal size equating to roughly 79.5% of the $5.66 billion the company spent on property, equipment, and intangibles in the second quarter.
The offering consists of $2.75 billion in notes due 2030 and a separate $1.75 billion tranche maturing in 2034. Including underwriter options, total proceeds could reach $5.175 billion, which would represent 91.4% of the quarterly capital outlay. The transaction is subject to market conditions, and completion is not guaranteed.
Nebius intends to use the proceeds to fund data centers, graphics processors, and its AI cloud platform. Additionally, the company plans to exchange a portion of its existing 2029 and 2031 notes for Class A shares, adding a further layer of dilution risk for current shareholders.
The market reaction was stark: approximately $6.9 billion in equity value was erased by 09:50 EDT, based on the share price decline and the latest share count. This sharp selloff reflects investor concerns about the pace of capital raising versus the company's infrastructure spending trajectory. Convertible note offerings often trigger short selling by hedge funds to hedge their positions, amplifying downward pressure in the near term.
Despite the financing overhang, Nebius's business momentum remains robust. Second-quarter revenue surged 454% year-over-year to $582.3 million, while adjusted EBITDA came in at $236.2 million, comfortably beating the $168.9 million analyst consensus. CEO Arkady Volozh reiterated the company's ambitious growth plans, raising the contracted-power target for year-end to 5 gigawatts, with a mix of owned and co-located sites.
Analyst sentiment is mixed but leans optimistic. The consensus price target from 14 analysts stands at $274.57, implying a potential 24% upside from Wednesday's close. Targets range from a bearish $144 (Morgan Stanley) to a bullish $410 (Northland). The wide dispersion highlights the uncertainty surrounding Nebius's ability to scale its financing structure to match its aggressive expansion.
Investors are also weighing the company's free cash flow outlook. Consensus estimates project free cash flow to plunge to negative $18.09 billion this year, even as revenue is expected to grow more than sixfold to $3.41 billion. Customer prepayments and capital markets are expected to bridge the funding gap, but the reliance on external financing remains a key risk.
Looking ahead, the pricing of the new notes will provide insights into the dilution investors expect. Subsequent updates on contracted power and the speed of cash deployment will be critical in determining whether Nebius can execute its strategy without further dilutive offerings. For now, the market's verdict is clear: the cost of growth is high, and investors are demanding a discount.
