Nebius Group (NASDAQ:NBIS) saw its shares decline 12.0% to $165.30 during early trading on Tuesday, significantly underperforming the broader Nasdaq, which also edged lower amid broader concerns about returns from artificial intelligence investments.
Capital Expenditure Concerns Weigh on Valuation
The sharp sell-off comes as investors scrutinize the company's software margins in light of a massive capital expenditure plan. Initial estimates indicate that Nebius intends to spend between $20 billion and $25 billion in 2026, which would represent 5.9 to 8.3 times its forecasted revenue of $3.0 to $3.4 billion. This ratio underscores the capital-intensive nature of the AI infrastructure business.
For the first quarter, Nebius reported capital expenditure of $2.47 billion, equivalent to 6.2 times group revenue. The company's AI-cloud division posted an adjusted EBITDA margin of 45%, but this figure excludes depreciation and amortization, which totaled $212 million and accounted for 53% of revenue. As a result, the group recorded an operating loss of $128 million.
Asset-Light Strategy Aims to Shift Risk
The heavy spending highlights the significance of Nebius's asset-light strategy announced on July 15. Under this new model, partners would provide funding and own the equipment, while Nebius would manage the architecture, software, service commitments, and customer relationships. Chief Executive Arkady Volozh emphasized that the company's software enables partners to reach a broader customer base with improved margins.
Nebius stated it has reached preliminary agreements under this model but did not disclose partner names, capacity commitments, timelines, or estimated cost reductions. As a result, any short-term impact on capital expenditure remains uncertain.
Financing Supported by Debt and Customer Funds
To fund its current build-out, Nebius secured $775 million in secured debt financing on July 17, with an interest rate tied to the Secured Overnight Financing Rate plus 2.50 percentage points. The loan is backed by deployed GPUs and contracted customer cash flows, which the company says fully finance the infrastructure's capital expenditure requirements.
Nebius also pointed to over $40 billion in contracted revenue from Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META), which could allow for additional borrowing at the asset level. The company reported cash holdings of $9.30 billion as of March 31, while total debt stood at approximately $8.45 billion, roughly double the level at year-end 2025. Operating cash flow for the first quarter was $2.26 billion, supported by a $3.20 billion increase in deferred revenue from customer prepayments.
Market Context and Risks
The broader AI sector also faced headwinds, with CoreWeave (NASDAQ:CRWV) declining 7.8%, while Nvidia (NASDAQ:NVDA) remained largely steady. The Nasdaq slipped 1.16% at the open as investors weighed returns from AI investments. Nebius's sharper decline reflects additional concerns about financing amid sector softness.
Earlier in the week, Nebius shares had surged roughly 19% after Nvidia disclosed a 9.3% beneficial stake. The reversal on Tuesday highlights the rapid shift from strategic confidence to caution around capital expenditure.
Key risks for Nebius include customer concentration, delivery setbacks, outdated GPUs, and rising funding expenses. Reduced utilization would amplify the impact of depreciation. However, these risks could be mitigated by faster partner rollouts or improved pricing power.
Investors are now looking for evidence of partner capacity, fee structures, and tangible reductions in owned capital expenditure before they can fully embrace the asset-light model. Until those are demonstrated, Nebius will continue to operate with software-level margins on an infrastructure-heavy balance sheet.
