Nebius Group N.V. (NASDAQ:NBIS) experienced a sharp decline on Wednesday, with shares dropping 17.01% to close at $229.18. The sell-off came on heavy volume of 30.3 million shares, well above the 65-day average. In after-hours trading, the stock was last seen at $229.30, according to MarketWatch.
The catalyst for the downturn was a report from Reuters, citing Bloomberg, that Meta Platforms Inc. (NASDAQ:META) is developing its own cloud business to monetize its excess AI computing capacity. Meta shares surged 8.8% on the news, while other companies that rent out GPU capacity, such as CoreWeave Inc. (NASDAQ:CRWV) and Nebius, saw their stocks decline.
Meta's move could directly impact Nebius, which in March signed a contract to supply $12 billion in dedicated capacity to Meta starting in early 2027. The agreement also includes an option for Meta to purchase up to $15 billion in additional capacity over five years. This guaranteed purchase is roughly 7.5 times Nebius's annualized Q1 group revenue of $1.6 billion, highlighting the significance of the deal to Nebius's business.
Gil Luria, a managing director at D.A. Davidson, told Reuters that Meta's cloud initiative is more concerning for neocloud providers than for major hyperscalers. Luria suggested that Meta 'may not need them anymore,' referencing the potential for Meta to become a competitor rather than a customer. Meta CEO Mark Zuckerberg had previously indicated in May that cloud computing was 'definitely on the table.'
Nebius's Q1 results revealed that AI cloud revenue accounted for approximately 98% of group revenue, underscoring the company's heavy reliance on this segment. The company reported first-quarter capital expenditures of about $2.5 billion, primarily for GPUs and data center expansion. Nebius has indicated it may seek additional borrowing in the mid-single-digit billions and is working to increase customer prepayments to reduce its need for equity and debt financing.
Despite the sharp drop, Nebius shares remain up 173.79% year-to-date. The stock closed at $112.50 before the Meta deal was announced in March and has since gained roughly 104%. However, the news of Meta's potential entry into the cloud market has introduced significant uncertainty, particularly given Nebius's reliance on Meta as a key customer.
Short interest in Nebius stands at 50.93 million shares, or about 25.21% of the float, as of June 15. Such high short interest can lead to volatile price swings, although it did not prevent Wednesday's decline. The broader market, as measured by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), was relatively flat, closing down 0.1%.
Investors are now closely watching whether Nebius can maintain its pricing power and secure prepayments from customers, especially as a major client may be evolving into a competitor. The company's ability to navigate this shifting landscape will be critical to its future growth and stock performance.
