Nebius Mega Deals with Microsoft and Meta Amplify Growth and Concentration Risks

What happened

Nebius Group has landed significant AI cloud capacity deals with Microsoft and Meta, as highlighted in a recent article, which lock in long-term revenue but raise customer concentration concerns. This aligns with the DeepValue report's mention of multi-billion-dollar contracts that fuel Nebius's rapid revenue growth, now at $302.1 million for the first nine months of 2025. However, the report underscores severe financial strain, with a $1.04 billion free cash flow burn in Q3 2025 and widening operating losses, despite a $2.45 billion cash reserve. The mega deals intensify concentration risk, making Nebius heavily reliant on a few customers and vulnerable to contract changes or execution failures, such as delays at the 300 MW Vineland data center. Consequently, while revenue visibility improves, the core issues of negative cash flows, high valuation at 104x P/E, and operational inefficiencies remain unresolved.

Implication

The deals provide revenue certainty but heighten concentration risk, potentially causing volatility if Microsoft or Meta alter their commitments. Nebius's financial health remains precarious with deep negative free cash flow and operating losses, raising sustainability concerns amid aggressive capex. Execution on critical projects like the Vineland data center is essential, and any delays or SLA failures could trigger sharp share-price declines. Governance weaknesses, including adverse internal-control opinions, add unmitigated risks that the deals do not address. Thus, the 'POTENTIAL SELL' recommendation from the DeepValue report holds, advising trimming or avoiding exposure at the current $21.65 billion market cap.

Thesis delta

The news confirms the growth trajectory from mega contracts but does not shift the investment thesis, as it amplifies concentration and execution risks already flagged in the DeepValue report. The 'POTENTIAL SELL' stance remains intact because the valuation embeds flawless execution, and the deals fail to address core financial weaknesses like negative cash flow and operating losses.