Nebius outlined an ambitious $40 billion spending plan for 2027 during its Q3 earnings call, exceeding Wall Street expectations. However, this strategy relies heavily on customer prepayments and loans secured by contracts, a method that faces risk if projects encounter delays or cancellations.
CEO Arkady Volozh acknowledged the challenges of such a massive scale, admitting during the call, "Building at this scale is hard, and delays are part of our industry right now. We are not immune."
The timing of the announcement follows reports that Microsoft is becoming hesitant about neocloud deals that fail to meet deadlines. This poses a significant threat to Nebius's financing model, which depends on timely repayment to service its debts.
A critical point of contention involves Nebius’s largest customer, Microsoft, which has a contract worth up to $19.4 billion for an AI computing center in Vineland, New Jersey. This facility is currently months behind schedule, with only half the capacity expected by year-end and the remainder delayed until Q2 2027.
The delay is attributed to DataOne, the site's operator, which decided to wind down temporary generation faster than anticipated as it transitions to Bloom Energy fuel cells. This shift was complicated by regulatory issues, as DataOne faced a $1.1 million fine from New Jersey regulators for operating 45 natural gas generators without required permits.
DataOne is also facing legal challenges, including a noise-complaint lawsuit from nearby residents regarding the center's constant humming.
The contract terms allow Microsoft to terminate affected services after a grace period if delivery dates are missed. Originally scheduled for 2025 and 2026, the delayed tranches now fall outside the original window, incurring financial penalties for late delivery.
Nebius stated that Microsoft participated in the planning process, though it remains unclear if Microsoft has accepted the new late dates, as no public cancellations have been announced.
Chief Revenue Officer Marc Boroditsky noted that deals with Microsoft and Meta included significant prepayments arriving long before delivery. However, Bloomberg reported that Microsoft is tightening oversight on third-party projects, including Nebius, and debating new agreements.
Microsoft's own earnings report revealed lower-than-expected capital expenditures due to these third-party delays, illustrating a willingness to pull back from partners who do not meet their obligations.
Nebius counters that the delays stem from sites it does not control, emphasizing that its self-built data centers are proceeding on schedule. The company claims new deals signed in Q3 came with prepayments covering construction costs and reported $7.4 billion in cash.
Nebius anticipates covering 85% of its $40 to $45 billion 2027 capex through prepayments and asset-backed financing. CFO Maria Del Dado Alonso Sanchez identified Microsoft and Meta as key contracts eligible for this financing.
Looking ahead, Nebius expects 2027 revenue of $12 to $13 billion and aims to break even on a pre-tax basis by the fourth quarter. The company reported Q3 revenue of $981 million, a 571% increase year-over-year, though it cut its 2026 forecast to $3 billion due to the third-party delays, resulting in a 17% drop in share value.
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