Nebius Shares Surge on Microsoft Deal Hype, Underscoring Deep Financial Risks

What happened

Nebius Group shares climbed more than 7% on Tuesday after analysts refocused attention on its large capacity contract with Microsoft and a plan to secure 2.5 GW of power. This news highlights the company's previously disclosed multi-billion dollar agreements with Microsoft and Meta, which are pivotal to its AI infrastructure growth strategy. However, DeepValue's master report reveals that Nebius continues to grapple with severe operating losses, negative free cash flow of approximately -$1.0 billion in Q3 2025, and an adverse opinion on internal controls. The stock's valuation around $97 per share already prices in successful execution of these contracts, despite persistent negative earnings and high capital intensity. Thus, the rally appears driven by speculative market enthusiasm rather than any fundamental improvement in the company's precarious financial position.

Implication

The renewed focus on Microsoft's contract does not mitigate Nebius's core challenges: operating losses remain deep, free cash flow is sharply negative, and customer concentration risks are heightened. With capex spikes and governance weaknesses persisting, the equity story relies heavily on flawless contract execution, which the DeepValue report rates as a 'POTENTIAL SELL' scenario. Non-specialist investors face limited downside protection, as the current market cap of ~$23B discounts optimistic growth while ignoring balance-sheet stress. Position trims are prudent, as the rally may offer an opportunity to reduce exposure before potential dilution or financial strain materializes. Monitoring should focus on Q4 2025 results for evidence of improving cash flow and contract ramp, but any investment should be cautious given the high probability of bearish outcomes.

Thesis delta

The news does not alter the investment thesis, as it reiterates known contract details without addressing Nebius's financial or operational weaknesses. If anything, the rally increases overvaluation risks, reinforcing the recommendation to trim positions above $125. Investors should await clearer signs of profitability and governance improvements before considering any bullish shift.